SIMON BROWN: I’m chatting now with Harris Gorre from Grovepoint Investments. Harris, I appreciate the early morning time again, the private credit market. We had our own Monetary Policy Committee, the MPC, yesterday kind of going down on rate cuts. Back in January we all thought – well, not thought, the market was saying it – that the US Federal Reserve would be cutting by March. That has come and gone with no rate cuts.
It’s been an upsetting factor for the local banks in the US, the regional banks. Their cost of deposits has gone up. There are a number of banking rates that have come in that have made it harder for them to lend, have made the regulatory environment there uncertain for midsize banks especially, and for the larger banks.
SIMON BROWN: That’s a good point. Rates are staying higher only because the economy is absolutely managing it. And we see that particularly in the US. It was about 18 months ago or so when Jerome Powell said there will be some pressure on unemployment. So far, zero pressure on unemployment. Banks have started to fight back. And I think if anyone has been reading the press in the US they would see that some banks have actually taken out billboards to lobby the public to kind of lobby Congress on their behalf against these capital rules.
And then I suppose a third factor, which has been very public recently, has been the buildup of CRE, commercial real estate, especially on regional bank balance sheets. And you’ve had this increase in interest rates. That’s the part of the market that has had the most effect, and banks are really trying to work through their issues in the CRE market.
HARRIS GORRE: Yes, a diversified source of returns is how we’d see it. We think that the private markets, obviously if you go into an illiquid fund – we don’t invest in the illiquid private credit funds – you have correlation due to the mark-to-book value instead of mark-to-market. We invest in the listed markets, so you have mark-to-market. So you have, call it volatility that’s correlated to equity markets.
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