Don’t Count Your Dollars Yet! The Truth About PE Valuations

1 00:00:07,049 - > 00:00:09,839 Welcome to the Private Equity Experience Podcast. 2 00:00:10,109 - > 00:00:13,650 Your backstage pass to the strategies, stories, and secrets 3 00:00:13,859 - > 00:00:16,589 that drive value in the PE universe. 4 00:00:16,920 - > 00:00:20,519 No filters, no fluff, just straight talk and expert 5 00:00:20,519 - > 00:00:24,059 insights to help you navigate the private equity world with 6 00:00:24,065 - > 00:00:24,475 confidence. 7 00:00:25,440 - > 00:00:30,600 And now your hosts, ed Barton, Rory Leaphart, and Emily Sander. 8 00:00:34,250 - > 00:00:34,640 rory-liebhart_1_05-15-202: Yeah. 9 00:00:34,990 - > 00:00:36,340 emily-sander_1_05-15-2026_: like your necklace by the way, dude. 10 00:00:36,340 - > 00:00:37,130 Is that like a, is 11 00:00:37,960 - > 00:00:38,450 rory-liebhart_1_05-15-2: Thanks. 12 00:00:38,570 - > 00:00:39,600 emily-sander_1_05-15-2026_: Etsy buy or...? 13 00:00:40,060 - > 00:00:41,579 rory-liebhart_1_05-15: Actually, it is, as a matter of fact. 14 00:00:41,579 - > 00:00:42,030 Yes. 15 00:00:42,149 - > 00:00:42,600 Yep. 16 00:00:42,909 - > 00:00:44,960 It is an Etsy buy. 17 00:00:44,960 - > 00:00:46,159 Spot on, actually. 18 00:00:46,719 - > 00:00:46,990 Yeah. 19 00:00:47,600 - > 00:00:48,000 Yeah. 20 00:00:48,130 - > 00:00:48,619 emily-sander_1_05-15-2026: Yeah. 21 00:00:48,770 - > 00:00:49,060 rory-liebhart_1_05-15-202: Yeah. 22 00:00:49,179 - > 00:00:49,679 emily-sander_1_05-15-2026_1: No, I love 23 00:00:49,859 - > 00:00:50,350 rory-liebhart_1_05-15-2: Thanks. 24 00:00:50,429 - > 00:00:50,689 Yeah. 25 00:00:50,899 - > 00:00:51,170 Yeah. 26 00:00:52,149 - > 00:00:52,909 emily-sander_1_05-15-2026_: Very cool. 27 00:00:52,979 - > 00:00:53,600 Okay. 28 00:00:54,689 - > 00:01:00,079 Big Riggs, manly Etsy necklace man, um, you came up with the 29 00:01:00,079 - > 00:01:04,120 Wall Street Journal article that, uh, I could not read'cause 30 00:01:04,120 - > 00:01:08,090 I'm not fancy like you and subscribed to that, but it, the 31 00:01:08,090 - > 00:01:09,549 title was Crazy Math. 32 00:01:09,739 - > 00:01:10,069 rory-liebhart_1_05-15-2026_1: it was, 33 00:01:10,129 - > 00:01:11,480 emily-sander_1_05-15-2026_1: And so what, what, 34 00:01:11,750 - > 00:01:11,989 rory-liebhart_1_05-15-202: Yeah. 35 00:01:12,120 - > 00:01:13,230 emily-sander_1_05-15-2026_: what is this article about? 36 00:01:13,230 - > 00:01:14,370 What's it talking about? 37 00:01:14,459 - > 00:01:15,980 rory-liebhart_1_05-15-2026_1: it i- the, the article was a Wall 38 00:01:15,980 - > 00:01:17,930 Street Journal article published a couple weeks ago. 39 00:01:17,959 - > 00:01:21,609 It was called"The Crazy Math Confronting Everyday Investors 40 00:01:21,609 - > 00:01:25,640 in Private Markets." And these articles are clickbait in a lot 41 00:01:25,640 - > 00:01:28,549 of ways, which clicked me in, and I was baited and hooked to 42 00:01:28,549 - > 00:01:29,890 read it. 43 00:01:29,890 - > 00:01:32,359 And, uh, this one was actually about really bringing into 44 00:01:32,359 - > 00:01:36,829 context today how there's this perception that private credit, 45 00:01:36,829 - > 00:01:40,489 which is an asset class of its own, but different than private 46 00:01:40,489 - > 00:01:44,340 equity credit being, you know, debt financing versus equity 47 00:01:44,340 - > 00:01:48,459 being, you know, um, ownership, if you will, rather than lending 48 00:01:48,459 - > 00:01:50,079 to the, to the folks listening out there. 49 00:01:50,480 - > 00:01:53,099 Um, you know, there's been this, there's been a couple public- 50 00:01:53,250 - > 00:01:56,939 publicized stories where, you know, big investors in private 51 00:01:56,939 - > 00:02:00,799 credit funds have, um, you know, redeemed from the funds that 52 00:02:00,799 - > 00:02:04,090 they are in, and so the funds themselves are, you know, i- in 53 00:02:04,140 - > 00:02:06,239 some ways struggling with liquidity. 54 00:02:06,239 - > 00:02:08,259 Although, I think, I think the story's been overblown. 55 00:02:08,360 - > 00:02:12,099 But the point is that this article is saying,"Hey, um, 56 00:02:12,099 - > 00:02:14,710 private, private credit funds are having problems with 57 00:02:14,710 - > 00:02:19,770 investors leaving based on performance of their loan 58 00:02:19,770 - > 00:02:23,590 portfolios." So you have a couple bad loans go, or a couple 59 00:02:23,590 - > 00:02:26,430 loans go bad, investors say,"Oh, I don't want any one of - I 60 00:02:26,430 - > 00:02:27,800 don't want any more of this asset class. 61 00:02:27,800 - > 00:02:29,789 I gotta get out of it." That's the perception. 62 00:02:30,300 - > 00:02:32,219 Um, they're comparing it to private equity, which is a 63 00:02:32,370 - > 00:02:35,669 different asset class for a variety of reasons. 64 00:02:36,159 - > 00:02:39,800 Um, and the, the, the thought that maybe that if there's 65 00:02:39,900 - > 00:02:42,939 performance issues within private, private equity funds, 66 00:02:43,349 - > 00:02:46,229 that maybe investors would get scared and, and run away too, 67 00:02:46,419 - > 00:02:49,020 which, you know, I don't think that's ever gonna happen en 68 00:02:49,020 - > 00:02:49,419 masse. 69 00:02:49,520 - > 00:02:52,840 But, um, one of the things that was brought up in this, and this 70 00:02:52,840 - > 00:02:56,000 is where, you know, we can kinda talk about some more esoteric 71 00:02:56,000 - > 00:02:59,879 elements, is that- Um, private credit funds, how they account 72 00:02:59,879 - > 00:03:02,680 for their portfolio is very different than private equity 73 00:03:02,680 - > 00:03:07,479 funds because, uh, a private credit fund is, uh, is making 74 00:03:07,530 - > 00:03:11,509 loans to middle market companies or other, other funds and things 75 00:03:11,509 - > 00:03:12,300 like that. 76 00:03:12,610 - > 00:03:15,199 And so their upside is capped, so they're basically accounting 77 00:03:15,199 - > 00:03:17,710 for losses, but they're not re- they can't really reap more 78 00:03:17,710 - > 00:03:21,599 gains than what their, their, their coupon is really, and, and 79 00:03:21,599 - > 00:03:23,280 some other small elements to that. 80 00:03:23,689 - > 00:03:27,300 Whereas private equity funds book gains on the acquisition of 81 00:03:27,300 - > 00:03:28,800 their portfolio companies. 82 00:03:28,889 - > 00:03:33,560 So there's some, there's some esoteric gain on purchase and 83 00:03:33,560 - > 00:03:37,610 sale, uh, math that goes into it, and how that plays out is, 84 00:03:38,110 - > 00:03:41,449 um, you know, some managers are incentivized based on fund 85 00:03:41,449 - > 00:03:43,569 performance, and fund performance is dictated by the 86 00:03:43,569 - > 00:03:45,150 way some of the accounting rules work. 87 00:03:45,389 - > 00:03:47,710 It's not just always just based on cash flow. 88 00:03:48,289 - > 00:03:51,080 So it just brought up a whole host of questions around, well, 89 00:03:51,080 - > 00:03:54,560 what is, how do, how, how is private, private equity account 90 00:03:54,560 - > 00:03:57,330 for performance of its portfolio? 91 00:03:57,699 - > 00:04:02,560 How does it mark that to market as it should be on a quarterly 92 00:04:02,560 - > 00:04:03,879 basis, yada, yada, yada. 93 00:04:03,879 - > 00:04:07,740 So it was kind of like a clickbaity story, but it made, 94 00:04:07,740 - > 00:04:11,360 uh, me think about, hey, maybe our listeners wanna know all 95 00:04:11,360 - > 00:04:15,300 about the ways in which the accounting for, um, acquisitions 96 00:04:15,300 - > 00:04:18,480 of companies and, and participations in companies, uh, 97 00:04:18,480 - > 00:04:20,529 is booked on the balance sheet and tested. 98 00:04:20,769 - > 00:04:22,269 Probably not, but maybe they are. 99 00:04:22,310 - > 00:04:22,720 Who knows? 100 00:04:26,435 - > 00:04:28,194 emily-sander_1_05-15-2026_13: I, I'm sure all two of the 101 00:04:28,194 - > 00:04:30,814 listeners left are intrigued by this, this topic. 102 00:04:31,204 - > 00:04:31,605 Um, 103 00:04:32,040 - > 00:04:32,329 rory-liebhart_1_05-15-202: Yeah. 104 00:04:32,454 - > 00:04:35,035 emily-sander_1_05-15-2026_: just to like for, for my refresher, 105 00:04:35,225 - > 00:04:38,665 uh, private credit is like the, the debt side. 106 00:04:38,754 - > 00:04:39,254 So 107 00:04:39,480 - > 00:04:39,740 rory-liebhart_1_05-15-202: Yeah. 108 00:04:40,035 - > 00:04:41,865 emily-sander_1_05-15-202: rattle off some common examples just so 109 00:04:41,865 - > 00:04:42,274 people... 110 00:04:42,389 - > 00:04:45,339 rory-liebhart_1_05-15-2026_: Uh, as far as names go, like, uh, 111 00:04:45,339 - > 00:04:49,129 Blue Owl Capital, Castle Lake, and then you, you know, as 112 00:04:49,129 - > 00:04:51,819 we've, as Ed and I have mentioned before, like you have 113 00:04:52,329 - > 00:04:56,050 big firms that have both private equity and a private credit, uh, 114 00:04:56,160 - > 00:04:58,269 you know, call it, you know, business. 115 00:04:58,269 - > 00:05:01,019 So Blackstone would be an example of that, something like 116 00:05:01,019 - > 00:05:01,300 that. 117 00:05:01,939 - > 00:05:04,829 So big, big funds, billions and billions and billions of 118 00:05:04,829 - > 00:05:05,540 dollars. 119 00:05:05,564 - > 00:05:06,925 emily-sander_1_05-15-202: What - But what's like a... 120 00:05:10,214 - > 00:05:10,754 Okay. 121 00:05:11,504 - > 00:05:13,915 big-ed - big-ed-_1_05-15-202: Now your, your challenge here, as 122 00:05:13,915 - > 00:05:19,204 Rory kind of noted, is liquidity when it comes to private debt is 123 00:05:19,204 - > 00:05:22,024 a different animal than it is for private equity even. 124 00:05:22,024 - > 00:05:22,384 Because 125 00:05:22,649 - > 00:05:23,139 rory-liebhart_1_05-15-202: Yeah. 126 00:05:23,154 - > 00:05:25,084 big-ed - big-ed-_1_05-15-202: you think about kind of the nature 127 00:05:25,084 - > 00:05:26,694 of debt, it's a fixed... 128 00:05:26,824 - > 00:05:31,084 normally a fixed term instrument that you're lending. 129 00:05:31,084 - > 00:05:38,204 And you're lending knowing the risk profile of that borrower is 130 00:05:38,204 - > 00:05:41,444 not bankable or 131 00:05:41,714 - > 00:05:42,334 emily-sander_1_05-15-: bankable. 132 00:05:42,439 - > 00:05:45,379 big-ed - big-ed-_1_05-15-202: So, so no normal bank is gonna 133 00:05:45,379 - > 00:05:47,420 extend credit to that borrower. 134 00:05:48,459 - > 00:05:50,100 They're probably pre-profit. 135 00:05:50,230 - > 00:05:51,069 They're, they're... 136 00:05:51,250 - > 00:05:52,540 They may be pre-revenue. 137 00:05:52,540 - > 00:05:55,740 They have - And so normally with these private credit, there's, 138 00:05:55,899 - > 00:05:59,709 there's structuring in the private credit instrument you 139 00:05:59,709 - > 00:06:02,199 know, potentially allows for warrants 140 00:06:02,649 - > 00:06:02,870 rory-liebhart_1_05-15-202: Yeah. 141 00:06:03,319 - > 00:06:04,689 big-ed - big-ed-_1_05-15-2026: or something which is an 142 00:06:04,689 - > 00:06:07,769 opportunity to buy equity when the company becomes successful. 143 00:06:07,800 - > 00:06:13,180 Or there's, you know, different escalators on repayment, or it's 144 00:06:13,180 - > 00:06:15,779 gonna be cashflow-driven repayment as opposed to a 145 00:06:15,779 - > 00:06:18,860 steady, you know, you pay back $10,000 a month plus interest. 146 00:06:18,860 - > 00:06:21,860 It's gonna be, you know, if your revenue is this, if you pay back 147 00:06:21,860 - > 00:06:22,040 this 148 00:06:22,240 - > 00:06:22,579 rory-liebhart_1_05-15-202: Yeah. 149 00:06:22,610 - > 00:06:24,370 big-ed - big-ed-_1_05-15: revenue is less, you pay less, and if 150 00:06:24,370 - > 00:06:25,689 your revenue is more, you pay more. 151 00:06:26,069 - > 00:06:29,699 There's a structuring in those that allows what would otherwise 152 00:06:29,699 - > 00:06:35,189 be a non-creditworthy borrower to borrow the money, and the 153 00:06:35,189 - > 00:06:39,560 folks lending into that space are essentially, you know, 154 00:06:39,560 - > 00:06:41,910 again, they're looking for private equity type returns. 155 00:06:41,910 - > 00:06:45,550 Private credit is, is looking for similar returns to private 156 00:06:45,550 - > 00:06:48,860 equity because got a, a similar risk premium. 157 00:06:49,644 - > 00:06:51,865 emily-sander_1_05-15-2026_13: So for private credit, you're the 158 00:06:51,939 - > 00:06:52,300 rory-liebhart_1_05-15-2026: Yes. 159 00:06:53,035 - > 00:06:54,214 emily-sander_1_05-15-2026_1: and then just give me an example of 160 00:06:54,214 - > 00:06:56,625 like what type of loan I would - like what type of loans are we 161 00:06:56,625 - > 00:06:57,245 talking about? 162 00:06:57,509 - > 00:07:00,600 rory-liebhart_1_05-15-2026_: Uh, construction loan perhaps, or an 163 00:07:00,600 - > 00:07:02,360 infrastructure building loan. 164 00:07:02,360 - > 00:07:06,009 So just, just what Ed said is, like, it's not that sophist - I 165 00:07:06,009 - > 00:07:08,819 mean, it's not that complicated in the sense that it's no 166 00:07:08,819 - > 00:07:11,860 different than taking out a personal loan, you know, for ten 167 00:07:11,860 - > 00:07:14,230 grand that you pay o- back over three, three years. 168 00:07:14,230 - > 00:07:17,589 In this case, it's like you're taking out, you know, tens of 169 00:07:17,589 - > 00:07:20,110 millions, hundreds of millions of dollars that you are agreeing 170 00:07:20,110 - > 00:07:24,620 to pay back principal and interest in, you know, five 171 00:07:24,620 - > 00:07:25,399 years, ten years. 172 00:07:25,790 - > 00:07:27,240 big-ed - big-ed-_1_05-15-202: So, and let me get, let me, let me 173 00:07:27,240 - > 00:07:28,839 give a real-life example Rory and I 174 00:07:29,069 - > 00:07:29,379 rory-liebhart_1_05-15-202: Yeah. 175 00:07:29,459 - > 00:07:32,399 big-ed - big-ed-_1_05-15-2026: We dealt with the old RBS Greenwich 176 00:07:32,399 - > 00:07:34,279 Capital back 20 years 177 00:07:34,360 - > 00:07:34,709 rory-liebhart_1_05-15-202: Yeah. 178 00:07:34,959 - > 00:07:35,060 Yeah. 179 00:07:35,379 - > 00:07:37,430 big-ed - big-ed-_1_05-15-202: and the deal that we had with RBS 180 00:07:37,430 - > 00:07:42,660 Greenwich was essentially they let us borrow to buy big 181 00:07:42,660 - > 00:07:45,740 portfolios of bankrupt consumer debt. 182 00:07:46,879 - > 00:07:50,889 They would lend us, on the first deal we did with them, 95% of 183 00:07:50,889 - > 00:07:51,269 the purchase 184 00:07:51,540 - > 00:07:51,949 rory-liebhart_1_05-15-2026: Yep. 185 00:07:52,779 - > 00:07:53,110 Yeah. 186 00:07:53,949 - > 00:07:54,259 Mm-hmm. 187 00:07:54,600 - > 00:07:55,949 big-ed - big-ed-_1_05-15-202: And they said,"Okay, now you..." And 188 00:07:55,949 - > 00:07:58,470 then you'd get this little, what they call a servicing strip. 189 00:07:58,620 - > 00:08:02,290 So they would go,"You could get $10 per account to manage it." 190 00:08:03,350 - > 00:08:06,939 as cash flow comes in, we get all the cash flow except for a 191 00:08:06,939 - > 00:08:09,430 small amount to repay principal plus interest. 192 00:08:09,459 - > 00:08:12,420 And then once the loan's paid back, we get 80% of the cash 193 00:08:12,420 - > 00:08:13,230 flow after that. 194 00:08:14,990 - > 00:08:17,500 So that, that's 195 00:08:17,694 - > 00:08:17,904 emily-sander_1_05-15-2026: yeah. 196 00:08:18,060 - > 00:08:20,279 big-ed - big-ed-_1_05-15-2026_: a classic private, kind of private 197 00:08:20,279 - > 00:08:25,329 credit experience where the, the structure of that note is done 198 00:08:25,329 - > 00:08:27,439 in such a way that no bank would ever do that. 199 00:08:27,860 - > 00:08:30,480 But RBS Greenwich Capital was kinda like their 200 00:08:32,720 - > 00:08:35,789 non-traditional - Was RBS, Royal Bank of Scotland's 201 00:08:35,830 - > 00:08:39,580 non-traditional, non-traditional arm, and they made loans like 202 00:08:39,580 - > 00:08:40,240 that all the time 203 00:08:41,195 - > 00:08:41,784 emily-sander_1_05-15-2026: Okay, wait. 204 00:08:41,815 - > 00:08:42,955 I gotta back up'cause my, 205 00:08:43,215 - > 00:08:47,215 big-ed - big-ed-_1_05-15-20: Hmm? 206 00:08:47,274 - > 00:08:51,659 emily-sander_1_05-15-2026_1: um, So private credit, I'm a lender. 207 00:08:51,690 - > 00:08:52,649 This is a loan. 208 00:08:53,519 - > 00:08:57,169 And so the whole mechanism is kind of flipped from private 209 00:08:57,169 - > 00:08:57,690 equity. 210 00:08:58,139 - > 00:08:58,799 So y-y... 211 00:09:00,044 - > 00:09:00,544 rory-liebhart_1_05-15-202: Yeah. 212 00:09:00,690 - > 00:09:01,350 emily-sander_1_05-15-: category. 213 00:09:02,389 - > 00:09:06,389 And then, so the way I earn money in private credit, you 214 00:09:06,389 - > 00:09:07,659 said, Rory, it was capped. 215 00:09:07,659 - > 00:09:10,340 Like, what are like the basic mechanics of like you, you give 216 00:09:10,340 - > 00:09:13,009 a loan and then you get the loan repaid 217 00:09:13,174 - > 00:09:13,715 rory-liebhart_1_05-15-20: That's it. 218 00:09:13,774 - > 00:09:14,044 Yeah. 219 00:09:14,269 - > 00:09:15,789 emily-sander_1_05: supp-supposed to be predictable and 220 00:09:15,865 - > 00:09:16,195 rory-liebhart_1_05-15-202: Yeah. 221 00:09:16,225 - > 00:09:18,375 I mean, uh, y- that, that's the way to think about it. 222 00:09:18,375 - > 00:09:21,875 Now, of course, again, what Ed said is also true, is there's 223 00:09:21,875 - > 00:09:25,995 usually some sort of equity incentive or kicker, if you 224 00:09:25,995 - > 00:09:32,085 will, to that the lender is granted by - for doing that 225 00:09:32,085 - > 00:09:32,445 loan. 226 00:09:32,554 - > 00:09:34,054 But by and large, that's 227 00:09:34,169 - > 00:09:34,600 emily-sander_1_05-15-2026_1: And this... 228 00:09:35,674 - > 00:09:36,434 rory-liebhart_1_05-15-20: that's a whole'nother... 229 00:09:36,835 - > 00:09:38,894 Just think about it this, the difference between that and 230 00:09:38,894 - > 00:09:41,825 private equity is like private equity wins when they buy a 231 00:09:41,825 - > 00:09:45,445 company low, do a bunch of stuff operationally and financially, 232 00:09:45,485 - > 00:09:46,205 and sell it high. 233 00:09:46,605 - > 00:09:47,754 The difference is their profit. 234 00:09:47,884 - > 00:09:51,845 Well, for a private credit fund, they just make money on that 235 00:09:51,845 - > 00:09:53,154 interest that they're charging. 236 00:09:54,850 - > 00:09:55,389 emily-sander_1_05-15-2026: Okay. 237 00:09:55,620 - > 00:09:55,919 Okay. 238 00:09:55,919 - > 00:09:56,019 So 239 00:09:56,075 - > 00:09:56,205 rory-liebhart_1_05-15-202: Yeah. 240 00:09:56,259 - > 00:09:56,289 emily-sander_1_05-15-2026_130: a 241 00:09:56,664 - > 00:09:57,965 rory-liebhart_1_05-1: Completely different category. 242 00:09:58,315 - > 00:09:58,644 Yeah. 243 00:09:59,379 - > 00:10:00,409 emily-sander_1_05-15-2026_: this would be like kind of 244 00:10:00,725 - > 00:10:01,075 rory-liebhart_1_05-15-202: Yeah. 245 00:10:01,575 - > 00:10:02,335 Y- yes. 246 00:10:02,365 - > 00:10:02,715 Yeah. 247 00:10:02,759 - > 00:10:03,370 emily-sander_1_05-: reluctantly, 248 00:10:03,455 - > 00:10:04,105 rory-liebhart_1_05-15-202: yeah, I 249 00:10:04,299 - > 00:10:04,559 emily-sander_1_05-15-2026: Okay. 250 00:10:06,575 - > 00:10:06,975 rory-liebhart_1_05-15-2026: yes. 251 00:10:06,975 - > 00:10:07,325 Yeah. 252 00:10:07,375 - > 00:10:09,815 There's obviously, you know, lots of caveats to that. 253 00:10:09,815 - > 00:10:12,325 Of course, there's different gradations and grades of loans 254 00:10:12,325 - > 00:10:16,095 and, uh, ratings and things like that, um, that, you know, the 255 00:10:16,095 - > 00:10:19,945 highest quality private equity play could be, um, less risky 256 00:10:19,945 - > 00:10:22,215 than the lowest quality credit play. 257 00:10:22,215 - > 00:10:23,804 But yeah, I mean, that's the way to think about it. 258 00:10:24,539 - > 00:10:28,820 emily-sander_1_05-15-2026_1: So, so is it, um, these types of 259 00:10:28,820 - > 00:10:32,100 loans a normal bank wouldn't take'cause they're too risky or 260 00:10:32,100 - > 00:10:36,210 just because they're structured in a kind of a way? 261 00:10:36,595 - > 00:10:36,875 rory-liebhart_1_05-15-202: Yeah. 262 00:10:36,945 - > 00:10:38,325 Both, both are largely true. 263 00:10:38,325 - > 00:10:38,575 Yeah. 264 00:10:38,705 - > 00:10:39,095 Exactly. 265 00:10:39,754 - > 00:10:41,414 big-ed - big-ed-_1_05-15-20: Now, the, the issue, as Rory was 266 00:10:41,414 - > 00:10:45,404 noting, is you've got - these have two elements, and one of 267 00:10:45,404 - > 00:10:47,634 which is what's this loan carrying value? 268 00:10:47,634 - > 00:10:50,125 So how is it valued for an investment perspective? 269 00:10:50,125 - > 00:10:50,524 So is it 270 00:10:50,544 - > 00:10:50,855 rory-liebhart_1_05-15-2026: Yep. 271 00:10:52,245 - > 00:10:53,825 big-ed - big-ed-_1_05-15-2026: So is, e-essentially, are we gonna 272 00:10:53,825 - > 00:10:54,794 get our money back? 273 00:10:54,855 - > 00:10:55,235 rory-liebhart_1_05-15-202: yeah. 274 00:10:55,274 - > 00:10:57,065 That's one way to think about it. 275 00:10:57,065 - > 00:10:58,355 Is it stumbling along? 276 00:10:58,384 - > 00:10:58,965 Yeah. 277 00:10:58,990 - > 00:10:59,129 emily-sander_1_05-15-2026_13: in a 278 00:10:59,355 - > 00:10:59,784 rory-liebhart_1_05-15-202: Yeah. 279 00:11:00,174 - > 00:11:00,365 big-ed - big-ed-_1_05-15-2: Yeah. 280 00:11:00,365 - > 00:11:00,575 Is 281 00:11:00,705 - > 00:11:00,875 rory-liebhart_1_05-15-2026: Yes. 282 00:11:01,504 - > 00:11:03,855 big-ed - big-ed-_1_05-15-2: A-and then the second piece is 283 00:11:04,710 - > 00:11:05,110 emily-sander_1_05-15-2026_13: Oh 284 00:11:05,625 - > 00:11:07,044 rory-liebhart_1_05-15-202: Yeah. 285 00:11:07,600 - > 00:11:11,600 emily-sander_1_05-15-2026_13: my 286 00:11:11,875 - > 00:11:13,215 big-ed - big-ed-_1_05-15-2026: in the sense that in order to get 287 00:11:13,215 - > 00:11:14,065 the money out, you've got to 288 00:11:14,304 - > 00:11:14,534 rory-liebhart_1_05-15-202: Yeah. 289 00:11:14,615 - > 00:11:15,825 big-ed - big-ed-_1_05-15-202: the company or you've got to sell 290 00:11:15,825 - > 00:11:17,174 your shares on a secondary. 291 00:11:18,465 - > 00:11:22,315 It's the same thing with private debt, where you essentially - or 292 00:11:22,315 - > 00:11:26,054 private credit, where you, i-in order for you to be able to get 293 00:11:26,054 - > 00:11:26,664 your money out. 294 00:11:26,664 - > 00:11:30,815 So when somebody goes,"I want out of this fund," they - you've 295 00:11:30,815 - > 00:11:34,264 got to be able to get that loan paid back by somebody, or you 296 00:11:34,264 - > 00:11:36,115 got to sell the loan to somebody. 297 00:11:36,465 - > 00:11:36,674 rory-liebhart_1_05-15-2026: Yep. 298 00:11:37,304 - > 00:11:38,455 big-ed - big-ed-_1_05-15-2: Well, that's a different - 299 00:11:38,674 - > 00:11:40,134 rory-liebhart_1_05-15-2026_1: if you're selling a loan, it's not 300 00:11:40,134 - > 00:11:42,865 being sold at par either on something like that. 301 00:11:43,370 - > 00:11:44,220 big-ed - big-ed-_1_05-15-20: It - yeah, so 302 00:11:44,350 - > 00:11:44,429 emily-sander_1_05-15-2026_1: Now 303 00:11:44,679 - > 00:11:46,549 big-ed - big-ed-_1_05-15-202: par value is like the actual face 304 00:11:46,549 - > 00:11:47,450 value of a loan. 305 00:11:47,789 - > 00:11:48,210 emily-sander_1_05-15-2026: hell? 306 00:11:48,870 - > 00:11:49,169 All right. 307 00:11:49,470 - > 00:11:50,799 big-ed - big-ed-_1_05-15-2: Yeah, this is - and, and what's funny 308 00:11:50,799 - > 00:11:51,409 is like Rory 309 00:11:51,450 - > 00:11:51,830 emily-sander_1_05-15-202: drunk. 310 00:11:51,889 - > 00:11:55,179 big-ed - big-ed-_1_05-15-20: Rory and I, we're both on the private 311 00:11:55,360 - > 00:11:55,710 l- uh, 312 00:11:55,860 - > 00:11:55,919 emily-sander_1_05-15-2026: know, 313 00:11:56,445 - > 00:11:56,825 rory-liebhart_1_05-15-2026_1: We did, 314 00:11:57,009 - > 00:11:57,580 big-ed - big-ed-_1_05-15: credit, we've 315 00:11:57,605 - > 00:11:57,975 rory-liebhart_1_05-15-202: yeah. 316 00:11:58,009 - > 00:11:59,220 big-ed - big-ed-_1_05-15: private credit, and 317 00:11:59,659 - > 00:12:00,870 emily-sander_1_05-15-20: That's, that's fantastic. 318 00:12:00,870 - > 00:12:01,389 But so, okay, 319 00:12:01,590 - > 00:12:03,679 big-ed - big-ed-_1_05-15-2026: so we, we might get geeking out and 320 00:12:03,679 - > 00:12:05,200 talk like words that no one 321 00:12:05,284 - > 00:12:05,644 rory-liebhart_1_05-15-2026: It's gonna 322 00:12:06,029 - > 00:12:06,460 emily-sander_1_05-15-2026_1: got it. 323 00:12:06,674 - > 00:12:07,945 rory-liebhart_1_05-15-2026_1: be a five-hour podcast. 324 00:12:07,945 - > 00:12:09,304 No, I was kidding. 325 00:12:09,529 - > 00:12:09,919 emily-sander_1_05-15-2026_1: got it. 326 00:12:10,330 - > 00:12:11,049 What are you carrying? 327 00:12:11,049 - > 00:12:11,710 What's the carry? 328 00:12:11,809 - > 00:12:13,549 What is just, like, simple definition? 329 00:12:13,549 - > 00:12:14,179 Carry 330 00:12:14,254 - > 00:12:14,565 rory-liebhart_1_05-15-2026: It - 331 00:12:14,710 - > 00:12:15,299 emily-sander_1_05-15-2026: is... 332 00:12:15,504 - > 00:12:18,774 rory-liebhart_1_05-15-2026_: the value of the asset. 333 00:12:21,044 - > 00:12:22,125 It's that, it's that simple. 334 00:12:22,409 - > 00:12:24,980 emily-sander_1_05-15-2026_1: And then impaired, impaired is 335 00:12:24,995 - > 00:12:25,654 rory-liebhart_1_05-15-2026: Yes. 336 00:12:25,809 - > 00:12:26,289 big-ed - big-ed-_1_05-15-20: Yes. 337 00:12:26,970 - > 00:12:27,240 So 338 00:12:27,264 - > 00:12:28,384 rory-liebhart_1_05-15-2026: It's a really good segue, by the way. 339 00:12:28,539 - > 00:12:30,240 big-ed - big-ed-_1_05-15: company a million dollars, 340 00:12:31,230 - > 00:12:31,570 emily-sander_1_05-15-2026_: Yep. 341 00:12:32,519 - > 00:12:34,139 big-ed - big-ed-_1_05-1: normally you would have that loan on your 342 00:12:34,139 - > 00:12:37,620 books, and you'd value that loan at a million dollars. 343 00:12:39,350 - > 00:12:43,350 But if you think that it's not gonna get paid back or it's 344 00:12:43,350 - > 00:12:46,649 delinquent or it's something, you, you impair that. 345 00:12:46,649 - > 00:12:49,519 You reduce the value to maybe $700,000. 346 00:12:49,615 - > 00:12:51,835 rory-liebhart_1_05-15-2026_1: by doing that, Emily and listeners, 347 00:12:52,455 - > 00:12:56,475 that difference between the prior carrying value and the new 348 00:12:56,475 - > 00:12:59,475 value that's impaired is basically take - it's taken as a 349 00:12:59,475 - > 00:13:00,014 loss. 350 00:13:00,914 - > 00:13:02,934 So if you think about that, it goes from the balance sheet to 351 00:13:02,934 - > 00:13:03,735 the income statement. 352 00:13:04,054 - > 00:13:04,534 Now we're getting... 353 00:13:05,269 - > 00:13:05,669 big-ed - big-ed-_1_05-15-202: And that 354 00:13:06,034 - > 00:13:06,615 rory-liebhart_1_05-15-2026: Yes. 355 00:13:07,019 - > 00:13:11,019 emily-sander_1_05-15-2026_1: Oh, 356 00:13:11,039 - > 00:13:14,740 big-ed - big-ed-_1_05-15-2026: as the, as the manager, it impacts 357 00:13:14,740 - > 00:13:14,830 my 358 00:13:15,054 - > 00:13:15,414 rory-liebhart_1_05-15-2026: Yep. 359 00:13:15,690 - > 00:13:17,139 big-ed - big-ed-_1_05-15-2026: on the assets under management 360 00:13:17,139 - > 00:13:17,539 because now those 361 00:13:17,615 - > 00:13:17,894 rory-liebhart_1_05-15-202: Boom. 362 00:13:17,894 - > 00:13:20,384 That was a perfect segue there, Emily. 363 00:13:20,504 - > 00:13:21,014 Exactly. 364 00:13:21,144 - > 00:13:21,644 That's it. 365 00:13:21,644 - > 00:13:25,065 And so, so therein lies the, the interesting part, and that's - 366 00:13:25,065 - > 00:13:26,884 we're just talking about private credit right there. 367 00:13:26,884 - > 00:13:28,715 It's, that's just, it's actually pretty simple. 368 00:13:28,715 - > 00:13:32,695 One thing that does need to be noted is that you're required to 369 00:13:32,735 - > 00:13:37,674 test these loans and these assets for impairment quarterly, 370 00:13:37,919 - > 00:13:38,100 emily-sander_1_05-15-2026_1: Oh. 371 00:13:38,595 - > 00:13:38,845 rory-liebhart_1_05-15-20: right? 372 00:13:39,044 - > 00:13:43,424 So Ed and I, a-again, we worked at a company together where we 373 00:13:43,424 - > 00:13:46,804 built an entire system where we would literally test thousands 374 00:13:46,804 - > 00:13:49,985 of portfolios in an automated fashion every single... 375 00:13:50,014 - > 00:13:52,455 We did it monthly, actually, but we reported quarterly. 376 00:13:52,629 - > 00:13:52,889 big-ed - big-ed-_1_05-15-20: Yep. 377 00:13:53,014 - > 00:13:54,504 rory-liebhart_1_05-15-2026_: Uh, we did it monthly, and we would 378 00:13:54,504 - > 00:13:58,784 basically book a shitload of journal entries that were at the 379 00:13:58,784 - > 00:14:02,715 portfolio level, basically gains and loss On the portfolio and, 380 00:14:02,715 - > 00:14:06,414 and without getting too crazy into the GAAP accounting, 381 00:14:06,414 - > 00:14:09,554 because that's even - it's, it's, it is very complex, but 382 00:14:09,554 - > 00:14:10,975 you can reverse losses. 383 00:14:11,205 - > 00:14:13,184 You can, you can take gains as well. 384 00:14:13,184 - > 00:14:13,764 It just hap... 385 00:14:13,764 - > 00:14:14,004 Yeah. 386 00:14:14,605 - > 00:14:17,815 So it's t- it's point in time, but the point is you're supposed 387 00:14:17,815 - > 00:14:19,215 to do it every quarter. 388 00:14:19,254 - > 00:14:19,924 And guess what? 389 00:14:19,924 - > 00:14:23,014 It's e- you know, with, with loans, it's pretty easy to 390 00:14:23,014 - > 00:14:25,524 determine what the, what the impairment is. 391 00:14:25,524 - > 00:14:27,085 Are you getting paid back on time? 392 00:14:27,284 - > 00:14:27,934 Yes, no. 393 00:14:28,504 - > 00:14:30,884 What's the magnitude of, of, of the miss? 394 00:14:30,995 - > 00:14:32,365 Then you basically impair it. 395 00:14:32,784 - > 00:14:35,825 Well, think about pr- well, transitioning that to private 396 00:14:35,825 - > 00:14:38,465 equity, which is the crux of this, this article, is to say, 397 00:14:38,914 - > 00:14:41,514 "Well, hey, that's all happening for private credit, and people 398 00:14:41,514 - > 00:14:43,945 are freaking out." Well, what about private equity? 399 00:14:43,945 - > 00:14:49,875 It's even more wild because private equity, what can happen 400 00:14:50,904 - > 00:14:55,174 is when a fund acquires an interest in a business, it puts 401 00:14:55,174 - > 00:15:01,245 it on its balance sheet as, um, puts it on its balance sheet. 402 00:15:01,245 - > 00:15:04,804 But in the process of that, there's all sorts of things that 403 00:15:04,804 - > 00:15:07,085 go into how much is put on the balance sheet. 404 00:15:07,085 - > 00:15:10,384 In other words, you can book the purchase price. 405 00:15:10,384 - > 00:15:14,085 You could, you could book the value of the asset at different 406 00:15:14,184 - > 00:15:16,514 value than what you actually paid for it. 407 00:15:16,514 - > 00:15:19,065 You basically can make the case that I got such a screaming 408 00:15:19,065 - > 00:15:19,485 deal. 409 00:15:19,695 - > 00:15:22,004 In a lot of cases, that's true for a private equity fund. 410 00:15:22,004 - > 00:15:24,955 It's, they're buying something that's got way more intrinsic 411 00:15:24,955 - > 00:15:29,085 value than what they paid for it, because maybe they bought it 412 00:15:29,085 - > 00:15:29,884 in distress. 413 00:15:29,884 - > 00:15:32,065 Maybe it's a perfectly good company that just ran out of 414 00:15:32,065 - > 00:15:35,335 cash and had no prospects for getting more cash. 415 00:15:35,335 - > 00:15:36,924 They're like,"Wait, this is a good business. 416 00:15:37,125 - > 00:15:37,634 We'll pick it up. 417 00:15:37,634 - > 00:15:41,245 We got the cash." But anyway, so the point is, you can do all of 418 00:15:41,245 - > 00:15:45,264 these, these, um, calculations about market value and things 419 00:15:45,264 - > 00:15:45,725 like that. 420 00:15:45,725 - > 00:15:48,504 It's kind of subjective, and you can put on your balance sheet a 421 00:15:48,504 - > 00:15:49,054 certain value. 422 00:15:49,485 - > 00:15:50,095 But guess what? 423 00:15:50,095 - > 00:15:53,534 You still have to do, uh, they call it mark-to-market, uh, 424 00:15:53,534 - > 00:15:56,365 impairment testing, if you will, and you do that quarterly as 425 00:15:56,365 - > 00:15:56,544 well. 426 00:15:56,544 - > 00:15:59,125 I think y- you can go for, like, a period of time before you 427 00:15:59,125 - > 00:16:00,294 actually do that, I want to say. 428 00:16:00,934 - > 00:16:03,164 But over, at a certain point in time, you're doing it regularly. 429 00:16:03,784 - > 00:16:08,044 So think about the fact that there's all sorts of subjective, 430 00:16:08,794 - > 00:16:11,664 uh, ways to look at a market of va- market value of a company, 431 00:16:11,855 - > 00:16:15,654 and so you can make a case for any number of things at even an 432 00:16:15,654 - > 00:16:16,475 inflated value. 433 00:16:16,475 - > 00:16:20,115 So you might be able to kind of surmise that there might be some 434 00:16:20,115 - > 00:16:25,024 moral hazard in that, where, you know, somebody that runs a fund 435 00:16:25,414 - > 00:16:29,304 might be incentivized to keep a value inflated for just a little 436 00:16:29,304 - > 00:16:33,294 while, uh, while we work this other portfolio company out so 437 00:16:33,294 - > 00:16:36,794 that they don't, as Ed said, lose that denominator from which 438 00:16:36,794 - > 00:16:40,164 their 2% asset management fees calculate off of and their 439 00:16:40,164 - > 00:16:44,625 profits interest that is, you know, uh, partially due to the 440 00:16:44,654 - > 00:16:47,465 actual book profitability of that fund. 441 00:16:47,684 - > 00:16:52,784 So it's way more complex, I, I would say, or I guess more 442 00:16:52,784 - > 00:16:58,059 subjective than Private credit, but s- so, you know, you c- 443 00:16:58,299 - > 00:17:00,629 people aren't running to the - people aren't rushing to mark 444 00:17:00,629 - > 00:17:01,990 things down, let me just tell you that. 445 00:17:01,990 - > 00:17:04,390 Like, unless they've already sold the asset and they're 446 00:17:04,390 - > 00:17:05,450 getting some tax benefit from it. 447 00:17:05,549 - > 00:17:06,099 I don't know, but... 448 00:17:07,089 - > 00:17:10,710 emily-sander_1_05-15-2026_13: so it's kind of like they are 449 00:17:11,559 - > 00:17:15,019 figure skating of the Olympics, where like figure skaters are 450 00:17:15,019 - > 00:17:18,269 athletic, but they have these weird scores that are 451 00:17:18,420 - > 00:17:19,049 rory-liebhart_1_05-15-2026_: I'm tracking. 452 00:17:19,359 - > 00:17:19,779 Yeah. 453 00:17:19,890 - > 00:17:23,369 emily-sander_1_05-1: performance and like verve and what - like 454 00:17:23,369 - > 00:17:23,630 what? 455 00:17:23,789 - > 00:17:25,589 Like, okay, the guy did a triple axel 456 00:17:25,849 - > 00:17:26,140 rory-liebhart_1_05-15-202: Dude, 457 00:17:26,339 - > 00:17:27,400 emily-sander_1_05-15-2026_1: the costume, like I 458 00:17:27,470 - > 00:17:27,829 rory-liebhart_1_05-15-202: yeah. 459 00:17:28,059 - > 00:17:28,309 emily-sander_1_05-15-2026_13: So 460 00:17:29,269 - > 00:17:30,119 rory-liebhart_1_05-15-: Imagine, um, 461 00:17:30,339 - > 00:17:30,549 emily-sander_1_05-15-202: things 462 00:17:30,660 - > 00:17:31,029 rory-liebhart_1_05-15-2026: look at the, 463 00:17:31,150 - > 00:17:31,480 emily-sander_1_05-15-2026_1: on? 464 00:17:31,480 - > 00:17:32,920 rory-liebhart_1_05-15-20: public equities markets, right? 465 00:17:32,920 - > 00:17:36,000 Where it's all transparent and you're actually - you look at 466 00:17:36,000 - > 00:17:40,500 some of the p- price to earnings ratios, which figures into the 467 00:17:40,750 - > 00:17:41,920 price of the stock, right? 468 00:17:42,549 - > 00:17:45,349 And this is, this is published information public, and, like, 469 00:17:45,380 - > 00:17:48,059 these valuation ratios are, are nuts. 470 00:17:48,690 - > 00:17:52,140 Think about certain sectors that are crazy hot, AI, that kind of 471 00:17:52,140 - > 00:17:52,500 stuff. 472 00:17:52,500 - > 00:17:52,960 Like, there's no... 473 00:17:53,660 - > 00:17:53,890 emily-sander_1_05-15-202: Aren't they 474 00:17:53,960 - > 00:17:54,660 rory-liebhart_1_05-15-20: That's what I'm saying. 475 00:17:54,809 - > 00:17:56,450 Like, it's, it's all relative. 476 00:17:56,490 - > 00:17:57,390 It can be relative. 477 00:17:57,390 - > 00:17:59,849 One can make a case of relativity on just about 478 00:17:59,849 - > 00:18:00,359 anything. 479 00:18:00,970 - > 00:18:03,900 We can say that this is a cyclical issue, that there's 480 00:18:03,900 - > 00:18:07,950 inherent, um, value in this business that's unrealized 481 00:18:07,950 - > 00:18:08,470 today. 482 00:18:08,940 - > 00:18:11,789 Uh, you can talk about it from a competitive standpoint, which is 483 00:18:11,789 - > 00:18:14,640 kind of like a competitive, like, mark on private companies, 484 00:18:14,980 - > 00:18:16,619 what transacted previously. 485 00:18:16,619 - > 00:18:18,849 You can put yourselves - I've, I've been in companies that have 486 00:18:18,849 - > 00:18:19,170 done this. 487 00:18:19,170 - > 00:18:21,410 I've been, I've done these calculations where it's like, 488 00:18:22,059 - > 00:18:23,809 where's your company amongst its peers? 489 00:18:23,809 - > 00:18:26,210 Well, these are all private companies, so how do you put a 490 00:18:26,210 - > 00:18:28,839 value on your business and, you know, what have you? 491 00:18:28,869 - > 00:18:36,259 And so the point is there's, there's a lot of ways to, um, 492 00:18:37,750 - > 00:18:41,539 uh, how do I delicately put it without saying game things? 493 00:18:41,539 - > 00:18:46,829 But like, you, you can, you can engineer yourself out of taking 494 00:18:46,829 - > 00:18:48,779 big losses or you can engineer gains. 495 00:18:49,400 - > 00:18:53,700 But at some point, as we do all know, uh, you do - private 496 00:18:53,700 - > 00:18:54,819 equity doesn't make for life. 497 00:18:54,819 - > 00:18:57,630 So like when you do sell the asset, let's say you kept it at 498 00:18:57,630 - > 00:19:01,309 a way inflated value and you sell it way down here, you do 499 00:19:01,309 - > 00:19:03,349 have to pay the piper at some point. 500 00:19:03,849 - > 00:19:08,880 But along the way, who's really incentivized to, you know, um, 501 00:19:09,059 - > 00:19:15,079 keep, keep things, um, marked to market in all cases objectively 502 00:19:15,630 - > 00:19:18,259 if you're talking about fee income being driven from that? 503 00:19:18,259 - > 00:19:18,410 That's 504 00:19:19,634 - > 00:19:19,835 big-ed - big-ed-_1_05-15-2: Yeah. 505 00:19:19,839 - > 00:19:19,910 rory-liebhart_1_05-15-2026_1: a, 506 00:19:20,085 - > 00:19:21,375 big-ed - big-ed-_1_05-15-2026: I, what I would, what I would say 507 00:19:21,375 - > 00:19:26,125 is I have seen on - in my private equity experience, when 508 00:19:26,125 - > 00:19:29,724 you have a home run hit, at that point, they might 509 00:19:29,970 - > 00:19:30,720 rory-liebhart_1_05-1: reasonable question. 510 00:19:30,750 - > 00:19:31,069 Yeah. 511 00:19:31,164 - > 00:19:31,244 big-ed - big-ed-_1_05-15-2026: to 512 00:19:31,349 - > 00:19:31,410 rory-liebhart_1_05-15-202: Yeah. 513 00:19:31,694 - > 00:19:32,055 big-ed - big-ed-_1_05-15-20: down to 514 00:19:32,069 - > 00:19:32,130 rory-liebhart_1_05-15-202: Yeah. 515 00:19:32,355 - > 00:19:32,394 big-ed - big-ed-_1_05-15-2026: of 516 00:19:32,480 - > 00:19:32,740 rory-liebhart_1_05-15-202: Yeah. 517 00:19:32,750 - > 00:19:33,539 emily-sander_1_05-15-2026_1: Oh. 518 00:19:33,694 - > 00:19:34,365 big-ed - big-ed-_1_05-: kinda..." So 519 00:19:34,410 - > 00:19:34,599 rory-liebhart_1_05-15-20: That's a 520 00:19:34,734 - > 00:19:35,154 big-ed - big-ed-_1_05-1: maintain 521 00:19:35,289 - > 00:19:35,720 rory-liebhart_1_05-15-202: call. 522 00:19:35,950 - > 00:19:36,289 Yeah. 523 00:19:36,775 - > 00:19:37,335 big-ed - big-ed-_1_05-15-202: but we're 524 00:19:37,529 - > 00:19:37,849 rory-liebhart_1_05-15-202: Yeah. 525 00:19:37,904 - > 00:19:40,234 big-ed - big-ed-_1_05-1: bringing that other valuation down as we 526 00:19:40,234 - > 00:19:43,644 realize a big value on something else so that it kinda 527 00:19:43,880 - > 00:19:44,259 rory-liebhart_1_05-15-202: Yeah. 528 00:19:44,325 - > 00:19:45,664 big-ed - big-ed-_1_05-15-2026: it a little bit and keeps the 529 00:19:45,664 - > 00:19:46,184 reported 530 00:19:46,220 - > 00:19:46,460 emily-sander_1_05-15-2026_: like at 531 00:19:46,464 - > 00:19:47,025 big-ed - big-ed-_1_05-15-: return higher 532 00:19:47,289 - > 00:19:48,730 emily-sander_1_05-15-2026_: when you kind of dump some 533 00:19:48,769 - > 00:19:49,619 rory-liebhart_1_05-15-2026: Loss harvesting. 534 00:19:49,619 - > 00:19:50,509 Yeah, exactly right. 535 00:19:50,509 - > 00:19:51,329 That's a great call. 536 00:19:51,384 - > 00:19:51,704 big-ed - big-ed-_1_05-15-2: Yeah. 537 00:19:52,890 - > 00:19:53,099 rory-liebhart_1_05-15-202: Yeah. 538 00:19:53,619 - > 00:19:53,720 emily-sander_1_05-15-2026: Okay. 539 00:19:53,880 - > 00:19:57,799 So is this article saying there should be more of the impairment 540 00:19:57,799 - > 00:19:58,329 checks 541 00:19:58,579 - > 00:20:01,480 rory-liebhart_1_05-15-2026: more of an expository article in, in 542 00:20:01,480 - > 00:20:04,130 such form that like, it's just saying,"Hey, for all of you 543 00:20:04,130 - > 00:20:07,640 don't, that don't know about this, this, this happens." 544 00:20:07,900 - > 00:20:10,230 This - You're, you're worried about private credit and people 545 00:20:10,230 - > 00:20:10,990 fleeing from the, 546 00:20:11,019 - > 00:20:11,099 emily-sander_1_05-15-2026: okay. 547 00:20:11,339 - > 00:20:12,759 rory-liebhart_1_05-15-2026: from the, the funds. 548 00:20:12,759 - > 00:20:18,119 Well, private equity is bigger and is even more, uh, squishy. 549 00:20:18,144 - > 00:20:19,005 big-ed - big-ed-_1_0: Subjective. 550 00:20:19,319 - > 00:20:19,559 rory-liebhart_1_05-15-202: Yeah. 551 00:20:19,559 - > 00:20:22,509 So if you're into certainty and things like that, then, you 552 00:20:22,509 - > 00:20:24,809 know, um, that's so- that's something to think about. 553 00:20:24,809 - > 00:20:27,650 It's more just an intellectual article. 554 00:20:27,700 - > 00:20:28,890 Like I said, clickbaity. 555 00:20:28,920 - > 00:20:31,759 I found it interesting, but, you know, I don't... 556 00:20:32,059 - > 00:20:34,869 This is, this is how it's always been, probably how it always 557 00:20:34,869 - > 00:20:35,619 will be, you know? 558 00:20:36,109 - > 00:20:39,390 So because if you - I, I mean, how do you make the case the 559 00:20:39,390 - > 00:20:43,220 other way that like, there's a objective way to mark a private 560 00:20:43,220 - > 00:20:47,400 company to market based on m-myriad factors and that impact 561 00:20:47,400 - > 00:20:49,069 valuation in any day. 562 00:20:49,069 - > 00:20:51,700 These are not publicly traded, fully liquid securities, so how 563 00:20:51,700 - > 00:20:54,240 much of your value is liquidity based? 564 00:20:54,240 - > 00:20:57,140 How much of it is based on the fundamentals of the business? 565 00:20:57,140 - > 00:20:57,809 Things like that. 566 00:20:57,839 - > 00:21:01,640 How do you value a company that's just been part of a bunch 567 00:21:01,640 - > 00:21:04,920 of acquisitions that, like synergies? 568 00:21:04,960 - > 00:21:09,730 I think that's actually like one of the main, main, um, main, uh, 569 00:21:09,769 - > 00:21:14,640 like, uh, supports for certain valuation is like you create 570 00:21:14,640 - > 00:21:15,569 synergy, right? 571 00:21:15,569 - > 00:21:17,589 Like you bolt something onto another company. 572 00:21:17,970 - > 00:21:20,190 Well, those synergies will be realized over the next five 573 00:21:20,190 - > 00:21:21,519 years, and we're gonna factor that in here. 574 00:21:21,670 - > 00:21:23,240 You know, that kind of stuff, so. 575 00:21:24,400 - > 00:21:25,490 emily-sander_1_05-15-2026_1: You know, it'll be interesting to 576 00:21:25,490 - > 00:21:29,599 see how these financial folks are evaluated. 577 00:21:29,599 - > 00:21:33,170 Like, are you getting, getting good marks for like,"I can 578 00:21:33,170 - > 00:21:36,009 creatively craft this subjective thing," and then it's 579 00:21:36,039 - > 00:21:37,190 rory-liebhart_1_05-15-20: That's an interesting question. 580 00:21:37,220 - > 00:21:37,690 emily-sander_1_05-15-2026: where it's good? 581 00:21:37,839 - > 00:21:40,309 Or like,"No, no, no, like you had the biggest gap in the world 582 00:21:40,339 - > 00:21:41,109 where you're doing and you're, you're 583 00:21:41,369 - > 00:21:43,029 rory-liebhart_1_05-15-2026_1: my guess would be CFOs can keep 584 00:21:43,029 - > 00:21:44,619 their jobs if they do it well enough. 585 00:21:44,680 - > 00:21:48,839 Um, uh, and don't, I don't wanna miscon- I don't wanna 586 00:21:48,839 - > 00:21:51,130 misconstrue the message here. 587 00:21:51,170 - > 00:21:53,049 All of this stuff is totally audited. 588 00:21:53,079 - > 00:21:57,009 So like, again, y-you're, you - these are things that are 589 00:21:57,009 - > 00:21:57,970 modeled out. 590 00:21:57,970 - > 00:22:01,079 It's just that the variables are what's kind of somewhat 591 00:22:01,079 - > 00:22:01,849 subjective. 592 00:22:01,970 - > 00:22:04,359 Like you're not just making up, you're just not making up 593 00:22:04,359 - > 00:22:05,369 numbers generally. 594 00:22:05,369 - > 00:22:08,190 You're, you are creating a case for it because you will be 595 00:22:08,190 - > 00:22:11,579 audited, but the auditors will look at this stuff and say, 596 00:22:11,579 - > 00:22:13,339 "Okay, I can see the logic in it. 597 00:22:13,339 - > 00:22:15,980 Can I actually like prove it out?" Not necessarily, but 598 00:22:16,559 - > 00:22:19,049 that's not necessarily what the barometer is. 599 00:22:19,049 - > 00:22:22,759 It's like, is there supportive, uh, thinking behind this? 600 00:22:22,759 - > 00:22:25,150 And yeah, I mean, generally it is, yeah. 601 00:22:28,680 - > 00:22:29,140 emily-sander_1_05-15-20: Does... 602 00:22:30,039 - > 00:22:32,089 Is this one of those things where it's like,"Everyone's 603 00:22:32,089 - > 00:22:32,470 doing 604 00:22:32,799 - > 00:22:33,259 rory-liebhart_1_05-15-20: Kinda. 605 00:22:33,359 - > 00:22:33,440 I 606 00:22:33,470 - > 00:22:33,779 emily-sander_1_05-15-2026: doing 607 00:22:34,150 - > 00:22:34,400 rory-liebhart_1_05-15-202: yeah. 608 00:22:34,710 - > 00:22:35,039 Yeah. 609 00:22:35,079 - > 00:22:35,150 I 610 00:22:35,440 - > 00:22:35,809 emily-sander_1_05-15-2026: Okay. 611 00:22:36,200 - > 00:22:38,329 rory-liebhart_1_05-15-2026_13: I would say that like, you know, 612 00:22:38,490 - > 00:22:45,740 um, I don't know that there's like a pervasive like direct, 613 00:22:45,740 - > 00:22:49,154 "Hey, what's the performance of this fund?" To our investors, 614 00:22:49,154 - > 00:22:52,545 are we hitting our 10% preferred return to our investors? 615 00:22:52,994 - > 00:22:56,694 If so, then, you know, we can be a little more conservative on 616 00:22:56,694 - > 00:22:57,115 the mark. 617 00:22:57,154 - > 00:22:58,644 If not, then we could be more aggressive. 618 00:22:58,674 - > 00:22:59,805 I don't think that's happening. 619 00:22:59,865 - > 00:23:02,535 I just think that there's just, you know, people put thought 620 00:23:02,535 - > 00:23:05,454 into how to, how to put it on the balance sheet originally 621 00:23:05,454 - > 00:23:09,295 based on the, uh, acquisition, and then they basically test it 622 00:23:09,295 - > 00:23:09,674 from there. 623 00:23:09,674 - > 00:23:12,154 And unless there's some major sea change reason to 624 00:23:12,664 - > 00:23:16,355 market-to-market, um, or like Ed said, you know, kind of since 625 00:23:16,355 - > 00:23:19,224 situations come up where there's like a home run where it's like, 626 00:23:19,224 - > 00:23:24,144 okay, you know, uh, we probably ought to, you know, sort of slow 627 00:23:24,144 - > 00:23:24,575 things down. 628 00:23:24,575 - > 00:23:27,994 Like, you know, it's just why are you gonna spend the time 629 00:23:27,994 - > 00:23:30,684 every quarter to do a comprehensive market valuation 630 00:23:30,684 - > 00:23:35,184 to justify whether your, you know,$100 million investment is 631 00:23:35,285 - > 00:23:37,765 appreciated or depreciated by 3% either way, you know? 632 00:23:38,734 - > 00:23:39,384 It's just not gonna happen. 633 00:23:42,193 - > 00:23:43,683 emily-sander_1_05-15-2026: Yeah, I'm kind of wondering, like, I 634 00:23:43,683 - > 00:23:47,243 remember it's different than accounting and balancing the 635 00:23:47,243 - > 00:23:49,624 books where you wanna be like penny perfect if you 636 00:23:49,875 - > 00:23:51,934 rory-liebhart_1_05-15-2026_1: it is, uh, this is an accounting, 637 00:23:52,025 - > 00:23:54,345 this is an accounting exercise 100%. 638 00:23:55,025 - > 00:24:00,575 Um, but, but finance fuels accounting in this case, or I 639 00:24:00,575 - > 00:24:03,194 should say, you know, financial planning and analysis fuels 640 00:24:03,194 - > 00:24:03,724 accounting. 641 00:24:04,444 - > 00:24:07,375 Um, the accountant is just booking the journal entry on it. 642 00:24:07,375 - > 00:24:09,234 The balance sheet still does balance, I promise you. 643 00:24:09,684 - > 00:24:14,815 Um, but the, the, you know, the, the, the analytical teams are 644 00:24:14,815 - > 00:24:15,835 the ones doing the work. 645 00:24:16,125 - > 00:24:18,404 Um, and like I said, I think quarter to quarter, not a lot 646 00:24:18,404 - > 00:24:22,805 changes unless you do have like, you know, maybe the, the, the 647 00:24:23,035 - > 00:24:25,835 operating company itself underlying that investment 648 00:24:26,555 - > 00:24:29,724 either buys and sells another, um, com- part of, you know, 649 00:24:29,805 - > 00:24:33,484 either divests parts of itself or acquires a, you know, 650 00:24:33,555 - > 00:24:36,045 ancillary business or something like that, which you would then 651 00:24:36,365 - > 00:24:37,565 record, so. 652 00:24:38,494 - > 00:24:42,484 Um, but I think, um, you know, this, like I said, I think this 653 00:24:42,484 - > 00:24:44,785 article is interesting just 'cause I think it might be an 654 00:24:44,785 - > 00:24:47,204 eye-opener for people that are intellectually curious about it. 655 00:24:47,234 - > 00:24:50,355 But I think, you know, anyone that invests in private equity 656 00:24:50,615 - > 00:24:53,384 understands private equity for what it is. 657 00:24:53,414 - > 00:24:57,664 It is a risk-based investment, more so than a credit investment 658 00:24:57,664 - > 00:24:58,394 for the most part. 659 00:24:58,914 - > 00:25:01,325 And so, you know, I don't think you're gonna see a lot of people 660 00:25:01,894 - > 00:25:06,934 fleeing for the, um, exits because of like some revelatory 661 00:25:06,934 - > 00:25:10,174 article in Wall Street Journal about how the accounting works. 662 00:25:10,174 - > 00:25:13,265 So at the end of the day, it's still really about cash. 663 00:25:13,295 - > 00:25:15,224 So, um, you know. 664 00:25:15,555 - > 00:25:19,295 But, but you know, maybe private equity fund managers kind of 665 00:25:19,454 - > 00:25:22,454 keep tabs on things so that the, you know, incentive fees and, 666 00:25:23,174 - > 00:25:26,265 and asset management fees are not out of whack quarter to 667 00:25:26,265 - > 00:25:26,575 quarter. 668 00:25:28,805 - > 00:25:31,394 emily-sander_1_: Reputationally, like just, just like on the 669 00:25:31,394 - > 00:25:34,105 street, it's like,"Oh, like private credit is way more 670 00:25:34,105 - > 00:25:37,775 risky," or like,"Oh, private equity is like you're kind of 671 00:25:37,775 - > 00:25:38,414 rolling the dice 672 00:25:38,684 - > 00:25:40,634 rory-liebhart_1_05-15-2026_: My, my impression talking to folks 673 00:25:40,634 - > 00:25:43,704 is people still don't really get private credit. 674 00:25:43,845 - > 00:25:46,865 They don't - It's just, i- which is a funny thing because it's 675 00:25:46,865 - > 00:25:47,825 been so much more 676 00:25:48,744 - > 00:25:49,085 emily-sander_1_05-15-2026_: They were like 677 00:25:49,180 - > 00:25:49,460 rory-liebhart_1_05-15-202: Yeah. 678 00:25:49,460 - > 00:25:52,480 No, but now you're - you, you took, you took, uh, you know, 22 679 00:25:52,480 - > 00:25:54,789 minutes to, like, figure it out, and you're like,"Oh, yeah, I get 680 00:25:54,789 - > 00:25:56,480 it now." Like, um, 681 00:25:56,755 - > 00:25:56,845 emily-sander_1_05-15-2026: Yeah. 682 00:25:57,730 - > 00:25:59,569 rory-liebhart_1_05-15-2026_13: I think pe- but private credit, as 683 00:25:59,569 - > 00:26:02,250 Ed said, we've been doing deals in private credit for 20-plus 684 00:26:02,250 - > 00:26:04,549 years, and it's been a long far beyond be-before that. 685 00:26:04,579 - > 00:26:08,630 But, but people generally just look at these, this whole 686 00:26:08,630 - > 00:26:12,589 private equity or credit as just like this really scary 687 00:26:12,730 - > 00:26:17,660 alternative asset class that's like, you know, um, only the 688 00:26:17,660 - > 00:26:19,690 institutional investors plan. 689 00:26:19,690 - > 00:26:23,329 Which is funny because now this has never been more democratized 690 00:26:23,329 - > 00:26:24,859 for the masses than it is now. 691 00:26:24,859 - > 00:26:28,670 You, you know, as an individual, I can go participate in any 692 00:26:28,849 - > 00:26:29,670 private equity fund. 693 00:26:29,670 - > 00:26:31,859 Maybe not every fund, but, like, there's a lot of funds that are 694 00:26:31,859 - > 00:26:33,160 available to reta-retail. 695 00:26:33,160 - > 00:26:36,460 We're, we're retail investors, uh, let's, let's say. 696 00:26:36,660 - > 00:26:39,529 Um, it's available to everybody, and there's a lot of publicly 697 00:26:39,529 - > 00:26:43,480 traded private equity group companies that are large that 698 00:26:43,480 - > 00:26:47,259 you can, by buying the stock on the, you know, uh, Nasdaq or 699 00:26:47,259 - > 00:26:50,779 wherever it's traded, you're, you're, you have the same risk 700 00:26:50,779 - > 00:26:51,700 profile at that point. 701 00:26:51,809 - > 00:26:55,619 Maybe more liquidity with your own shares, but the underlying 702 00:26:55,619 - > 00:26:56,480 business is the same. 703 00:26:58,265 - > 00:26:59,075 emily-sander_1_05-15-2026_1: its own category or is that within 704 00:26:59,075 - > 00:27:03,194 one of... 705 00:27:03,579 - > 00:27:03,930 rory-liebhart_1_05-15-2: it's... 706 00:27:03,930 - > 00:27:05,349 I don't know, Ed, what do you think on that? 707 00:27:05,559 - > 00:27:07,589 I, I'd be interested in your perspective there. 708 00:27:07,910 - > 00:27:08,019 Yeah. 709 00:27:08,644 - > 00:27:09,424 big-ed - big-ed-_1_05-15-2: Yeah, it's in both. 710 00:27:09,424 - > 00:27:13,444 So real estate, it - again, if it's private credit, there's 711 00:27:13,444 - > 00:27:16,265 generally gonna be a structuring difference between what you 712 00:27:16,265 - > 00:27:17,944 would get from a traditional commercial 713 00:27:18,160 - > 00:27:18,450 rory-liebhart_1_05-15-202: Yeah. 714 00:27:18,994 - > 00:27:19,805 big-ed - big-ed-_1_05-15-202: you know, if you're doing a real 715 00:27:19,805 - > 00:27:20,625 estate development. 716 00:27:21,204 - > 00:27:24,035 Um, and that's generally gonna have either some level of 717 00:27:24,035 - > 00:27:30,515 escalator or graduated repayment or equity participation, along 718 00:27:30,515 - > 00:27:30,875 with it. 719 00:27:31,545 - > 00:27:32,555 emily-sander_1_05-15-20: Explain those three 720 00:27:32,644 - > 00:27:36,244 big-ed - big-ed-_1_05-15-2026: So an escalator is gonna be you 721 00:27:36,434 - > 00:27:39,174 borrow money for the, uh, development, and for the first 722 00:27:39,174 - > 00:27:39,964 two years, 723 00:27:40,130 - > 00:27:40,480 rory-liebhart_1_05-15-202: Yeah. 724 00:27:40,734 - > 00:27:42,055 big-ed - big-ed-_1_0: development or you're building an apartment 725 00:27:42,055 - > 00:27:44,835 complex, for the first two years it's interest only at a twelve 726 00:27:44,835 - > 00:27:45,565 percent rate. 727 00:27:46,005 - > 00:27:48,575 And then once the apartment building goes live, you start 728 00:27:48,575 - > 00:27:51,154 paying principal, and then your interest rate drops to eight 729 00:27:51,154 - > 00:27:52,464 percent or seven percent. 730 00:27:52,984 - > 00:27:56,154 And then at ten years, and it might be on a thirty-year 731 00:27:56,154 - > 00:27:58,984 amortization, and at ten years you have to refinance the whole 732 00:27:58,984 - > 00:27:59,164 thing. 733 00:27:59,785 - > 00:28:02,785 So it may be that's gonna have an escalator or a graduated 734 00:28:02,785 - > 00:28:03,684 payment structure. 735 00:28:04,075 - > 00:28:07,884 Or it may be that you go,"Okay, we've got..." You know, the, the 736 00:28:07,884 - > 00:28:10,654 real estate developer borrows ten million dollars to build 737 00:28:10,654 - > 00:28:13,204 this, to build this building, and they put up certain amount 738 00:28:13,204 - > 00:28:13,734 of money. 739 00:28:14,065 - > 00:28:18,154 And if the building sells within the first, you know, five years 740 00:28:18,154 - > 00:28:22,904 or ten years, that the - not only does the, uh, loan get paid 741 00:28:22,904 - > 00:28:23,964 back, but there's 742 00:28:24,160 - > 00:28:24,440 rory-liebhart_1_05-15-202: Yeah. 743 00:28:24,815 - > 00:28:25,525 big-ed - big-ed-_1_05-15: penalty or 744 00:28:25,579 - > 00:28:25,849 rory-liebhart_1_05-15-202: Yeah. 745 00:28:26,585 - > 00:28:27,714 big-ed - big-ed-_1_05-15-2: which is effectively an 746 00:28:27,740 - > 00:28:28,049 rory-liebhart_1_05-15-2026: Yep. 747 00:28:28,049 - > 00:28:28,140 Yep. 748 00:28:28,765 - > 00:28:31,375 big-ed - big-ed-_1_05-15-: amount that says, okay - or, or it's a 749 00:28:31,674 - > 00:28:34,244 profit participation amount that says,"Okay, if you really make a 750 00:28:34,244 - > 00:28:37,515 bunch of money and sell this thing, get-" You know, an 751 00:28:37,515 - > 00:28:38,924 additional, an additional 752 00:28:39,069 - > 00:28:39,420 rory-liebhart_1_05-15-202: Yeah. 753 00:28:39,474 - > 00:28:42,025 big-ed - big-ed-_1_05-15-2026: on it because you didn't hold - you 754 00:28:42,025 - > 00:28:44,654 didn't keep our loan out long enough, which also slows down 755 00:28:44,654 - > 00:28:44,775 the 756 00:28:45,160 - > 00:28:45,480 rory-liebhart_1_05-15-202: Yeah. 757 00:28:46,750 - > 00:28:47,660 That's very common 758 00:28:47,805 - > 00:28:49,144 big-ed - big-ed-_1_05-15-20: it's gonna have some of those types 759 00:28:49,144 - > 00:28:52,065 of structures in there on real estate that you're not 760 00:28:52,065 - > 00:28:55,505 necessarily gonna see in a deal where they're... 761 00:28:55,694 - > 00:28:58,134 You know, like the one that Rory and I were involved in, where it 762 00:28:58,134 - > 00:29:02,134 was really a different type of collateralized asset, which was 763 00:29:02,134 - > 00:29:05,525 loan pools, or into an operating company. 764 00:29:05,525 - > 00:29:08,664 But they all - anything in private credit is going to have 765 00:29:08,664 - > 00:29:14,335 some variation on a traditional loan theme you know, makes it 766 00:29:14,815 - > 00:29:18,634 not what a typical bank on Main Street is gonna, is gonna offer 767 00:29:18,634 - > 00:29:21,275 to anybody, or even a JPMorgan Chase. 768 00:29:21,275 - > 00:29:24,295 Although, like a JPMorgan Chase does have a, a 769 00:29:24,400 - > 00:29:24,460 rory-liebhart_1_05-15-202: Yeah. 770 00:29:24,555 - > 00:29:26,075 big-ed - big-ed-_1_05-15-2026: of specialty lending group that 771 00:29:26,075 - > 00:29:28,924 will do those types of, those types of loans, which is how we 772 00:29:28,924 - > 00:29:30,845 ended up with RBS, Greenwich Capital. 773 00:29:30,994 - > 00:29:33,644 Greenwich Capital is Royal Bank of Scotland's version of that. 774 00:29:34,599 - > 00:29:36,720 emily-sander_1_05-15-2026_1: But in theory, you could say,"I know 775 00:29:37,140 - > 00:29:39,960 where my money is going to be for the next 30 years and how 776 00:29:39,960 - > 00:29:43,789 the repayment schedule is gonna look like." And there's gonna 777 00:29:44,130 - > 00:29:49,920 ha- be some where they don't go to plan, but in some - in a lot 778 00:29:49,920 - > 00:29:52,130 of ways, it's more predictable than like private equity, and we 779 00:29:52,130 - > 00:29:54,730 think this company is gonna grow to be the next Facebook and da, 780 00:29:54,730 - > 00:29:54,940 da, da, 781 00:29:54,974 - > 00:29:56,444 big-ed - big-ed-_1_05-15-2: Yeah, but it's not a collateralized 782 00:29:56,444 - > 00:29:57,375 mortgage pool. 783 00:29:57,375 - > 00:29:57,914 It's not... 784 00:29:57,994 - > 00:30:01,515 I mean, it is a different risk profile with a different return 785 00:30:01,515 - > 00:30:04,454 profile because of the risk premium that's got to be built 786 00:30:04,454 - > 00:30:07,214 into that for illiquidity and for v-volatility. 787 00:30:07,845 - > 00:30:11,194 But it, it's sits somewhere between... 788 00:30:12,025 - > 00:30:14,605 And Rory described it earlier extremely well. 789 00:30:14,605 - > 00:30:17,724 Like, the best private equity is less risky than the worst 790 00:30:18,224 - > 00:30:19,934 private credit, and vice versa. 791 00:30:20,615 - > 00:30:20,855 You know? 792 00:30:20,855 - > 00:30:24,244 So it really should, all things being equal, if you look 793 00:30:24,269 - > 00:30:24,579 rory-liebhart_1_05-15-2026: Yep. 794 00:30:24,765 - > 00:30:26,954 big-ed - big-ed-_1_05-15-: stack, the private credit's gonna be 795 00:30:26,954 - > 00:30:29,934 ahead of the private equity on a capital stack in any given 796 00:30:29,934 - > 00:30:30,484 company. 797 00:30:31,095 - > 00:30:34,664 But it's really how is that pool assembled, because it's normally 798 00:30:34,664 - > 00:30:37,305 a fund of, and so there's multiple investments. 799 00:30:37,305 - > 00:30:38,535 How's that pool assembled? 800 00:30:38,934 - > 00:30:39,734 And that 801 00:30:39,849 - > 00:30:43,849 rory-liebhart_1_05-15-202: Yeah. 802 00:30:43,924 - > 00:30:45,964 big-ed - big-ed-_1_05-15-: credit a little bit less risky than 803 00:30:45,964 - > 00:30:47,454 private equity, but not always. 804 00:30:47,805 - > 00:30:50,644 And within that pool, you're gonna have, you know, riskier 805 00:30:50,644 - > 00:30:53,474 and less risky loans and riskier and less risky equity 806 00:30:53,474 - > 00:30:54,105 investments. 807 00:30:54,914 - > 00:30:55,934 emily-sander_1_05-15-2026_1: And you were mentioning, like, the, 808 00:30:56,015 - > 00:30:58,585 the grades earlier and there's different classes of things. 809 00:30:58,934 - > 00:31:02,444 Um, and then just to cover off on it, so what's the distinction 810 00:31:02,444 - > 00:31:03,335 for real estate? 811 00:31:03,704 - > 00:31:05,894 What would make it credit versus equity? 812 00:31:05,894 - > 00:31:06,865 You said they could be both. 813 00:31:07,744 - > 00:31:09,634 big-ed - big-ed-_1_05-15-20: it's gonna have - normally have some 814 00:31:09,634 - > 00:31:13,234 component in it that is not a traditional credit component. 815 00:31:13,865 - > 00:31:16,265 So a traditional credit component for a traditional 816 00:31:16,265 - > 00:31:18,634 mortgage on real estate is you borrow. 817 00:31:19,105 - > 00:31:21,994 The following month, you start repaying on an, on a 818 00:31:21,994 - > 00:31:25,325 amortization schedule that has essentially, for 819 00:31:25,325 - > 00:31:28,474 simpli-simplified, again, commercial is sometimes a little 820 00:31:28,474 - > 00:31:32,855 bit different, but basically has a level repayment a term of, 821 00:31:33,150 - > 00:31:34,609 rory-liebhart_1_05-15-2: Mm-hmm. 822 00:31:35,220 - > 00:31:35,480 Yeah. 823 00:31:36,160 - > 00:31:39,210 big-ed - big-ed-_1_05-15-2026_: A private credit instrument and 824 00:31:39,210 - > 00:31:42,210 real - that's secured by real estate may be in a second or 825 00:31:42,210 - > 00:31:44,869 third position, so it may not have the first mortgage. 826 00:31:44,869 - > 00:31:46,839 It may be in a second or third mortgage position. 827 00:31:47,289 - > 00:31:52,450 It may have something that varies that re - that amount 828 00:31:52,930 - > 00:31:57,759 based upon collected, based upon completion, based upon some 829 00:31:57,759 - > 00:31:58,940 other methodology. 830 00:31:59,410 - > 00:32:03,720 And it may also have a, if the, if the project is sold or 831 00:32:03,720 - > 00:32:07,359 refinanced within a certain amount of time, and the amount 832 00:32:07,359 - > 00:32:11,690 is in excess of X or Y, that we have a participation in that 833 00:32:11,690 - > 00:32:15,809 profit the sale of the, on the sale of the business or on the 834 00:32:15,809 - > 00:32:18,740 sale of the development as part of our 835 00:32:18,855 - > 00:32:19,144 rory-liebhart_1_05-15-202: Yeah. 836 00:32:19,339 - > 00:32:19,900 big-ed - big-ed-_1_05-1: package. 837 00:32:20,174 - > 00:32:21,964 rory-liebhart_1_05-15-2026_13: I mean, I think on a practical 838 00:32:21,964 - > 00:32:24,904 basis, and this is just Rory speaking from Rory's 839 00:32:25,674 - > 00:32:28,865 perspective, I do look at real estate as a separate asset class 840 00:32:28,865 - > 00:32:34,134 in itself in the sense that the characteristics of what makes a 841 00:32:34,134 - > 00:32:37,035 real estate play successful or unsuccessful are, is different 842 00:32:37,035 - > 00:32:41,164 than investing in a private credit fund or like a, a, a, a 843 00:32:41,454 - > 00:32:44,295 credit strategy or an equity strategy. 844 00:32:44,964 - > 00:32:46,994 We were dealing with businesses and operating companies. 845 00:32:47,164 - > 00:32:50,974 That being said, like Ed, where I attach it all is to say, if 846 00:32:50,974 - > 00:32:55,085 I'm investing in real estate, I do wanna understand how 847 00:32:55,085 - > 00:32:59,805 leveraged that real estate fund is because that itself creates a 848 00:32:59,805 - > 00:33:02,474 different risk profile than something that's not leveraged. 849 00:33:02,525 - > 00:33:06,184 So more leverage, more risky, less leverage, less risky, 850 00:33:06,214 - > 00:33:07,595 basically, all things being equal. 851 00:33:07,994 - > 00:33:12,404 So I think the, the interesting thing about, um, real estate is 852 00:33:12,404 - > 00:33:19,315 that it is its own unique thing, but it, it's - the level of 853 00:33:19,414 - > 00:33:22,994 performance and profitability dic- is dictated by, you know, 854 00:33:22,994 - > 00:33:26,684 kind of the level of debt and equity supporting that strategy, 855 00:33:26,755 - > 00:33:27,144 I guess. 856 00:33:27,184 - > 00:33:31,484 I mean, I, I guess you could say the same thing about any, you 857 00:33:31,484 - > 00:33:34,654 know, any business, but like, I don't know, it, it is its own 858 00:33:34,654 - > 00:33:35,224 unique thing. 859 00:33:35,224 - > 00:33:37,894 And the, the other thing I would say about real estate, since 860 00:33:37,894 - > 00:33:40,875 we're turning this into a real estate pod, which is great, uh, 861 00:33:40,875 - > 00:33:44,204 is that, you know, it's also, there's some s- very interesting 862 00:33:44,204 - > 00:33:46,265 tax strategies associated with that. 863 00:33:46,265 - > 00:33:49,214 So you can continue to flip properties and flip properties 864 00:33:49,214 - > 00:33:51,994 and flip properties on a 1031 exchange, which gives you 865 00:33:51,994 - > 00:33:53,884 significant tax benefits as well. 866 00:33:54,555 - > 00:33:58,474 Um, so it's, it's why it's generally offered as its own 867 00:33:58,474 - > 00:34:02,694 asset class and why we think about, like when we, we most, 868 00:34:02,825 - > 00:34:06,305 most individuals think about, "Hey, you know, I have my real 869 00:34:06,305 - > 00:34:09,344 estate, I have my home, like that's my own asset class," 870 00:34:09,344 - > 00:34:12,875 versus,"I also inves- I invest in the stock market too." People 871 00:34:13,065 - > 00:34:16,034 generally separate their investment holdings in like what 872 00:34:16,034 - > 00:34:19,005 properties they own and what like stocks and bonds they own. 873 00:34:19,034 - > 00:34:21,065 They don't really like think about it as one, one and the 874 00:34:21,065 - > 00:34:22,364 same, to make it simple. 875 00:34:24,699 - > 00:34:26,679 emily-sander_1_05-15-2026_13: So if people are - have read this 876 00:34:26,679 - > 00:34:29,559 article or have listened to this episode and now know 877 00:34:29,585 - > 00:34:31,155 rory-liebhart_1_05-15-2026_: Hit me up if you have any questions. 878 00:34:31,155 - > 00:34:32,775 Hit Ed up if you have any questions. 879 00:34:34,690 - > 00:34:36,239 emily-sander_1_05-15-2026: what, what, if anything, should they 880 00:34:36,690 - > 00:34:37,909 do with this information? 881 00:34:37,909 - > 00:34:38,130 Or is it 882 00:34:38,315 - > 00:34:39,355 rory-liebhart_1_05-15-2026_13: I don't know, just, just to 883 00:34:39,360 - > 00:34:40,059 emily-sander_1_05-15-2026_1: and have a fuller picture"? 884 00:34:40,235 - > 00:34:40,614 rory-liebhart_1_05-15-2026_: add to that brain, you 885 00:34:40,695 - > 00:34:40,775 big-ed - big-ed-_1_05-15-202: the 886 00:34:40,795 - > 00:34:42,414 rory-liebhart_1_05-15-2026: It's just one more kind of 887 00:34:42,414 - > 00:34:44,315 interesting piece of information to have. 888 00:34:44,675 - > 00:34:46,244 I don't know that there's anything really applicable 889 00:34:46,244 - > 00:34:50,045 unless you're like, uh, you know, running a, you know, 890 00:34:50,045 - > 00:34:54,625 endowment or, you know, um, you know, like a sovereign wealth 891 00:34:54,625 - > 00:34:57,335 fund and, like, want to think about whether to run for the 892 00:34:57,335 - > 00:34:59,815 streets be-because of, like, accounting rules. 893 00:34:59,815 - > 00:35:00,704 But, you know, I don't... 894 00:35:01,525 - > 00:35:03,125 big-ed - big-ed-_1_05-15-2026_: I think it, I think it is a - I 895 00:35:03,125 - > 00:35:06,934 think the practical answer is, and, and Rory kind of talked 896 00:35:06,934 - > 00:35:09,494 about the institutional investor who's gonna have significant 897 00:35:09,494 - > 00:35:15,505 money is, there is a lot of squish in the valuation that 898 00:35:15,505 - > 00:35:19,914 your private equity fund is reporting to you on your private 899 00:35:19,914 - > 00:35:24,155 equity position and the underlying valuation of each of 900 00:35:24,155 - > 00:35:27,494 those companies within the pool, which are then aggregated to 901 00:35:27,494 - > 00:35:29,655 come up with a pool, you know, a, 902 00:35:29,954 - > 00:35:30,175 rory-liebhart_1_05-15-2026: Yep. 903 00:35:30,195 - > 00:35:32,275 big-ed - big-ed-_1_05-15-2: value or a fund value. 904 00:35:32,275 - > 00:35:36,275 So proceed with caution and don't, you know, basically don't 905 00:35:36,275 - > 00:35:39,224 count those, don't count those dollars before they hit the bank 906 00:35:39,284 - > 00:35:43,144 because they may be particularly, you know, in a 907 00:35:43,144 - > 00:35:46,105 period of rising interest rates or a period of uncertainty, they 908 00:35:46,105 - > 00:35:50,784 may be significantly, overvalued at present relative to what 909 00:35:50,784 - > 00:35:53,164 you'd be able to realize on a transaction. 910 00:35:53,164 - > 00:35:56,414 And that's the kind of the underlying piece of this is 911 00:35:56,885 - > 00:36:00,485 you're gonna get a statement or a report out from your, from 912 00:36:00,485 - > 00:36:03,514 your private equity general partner that says, you know, 913 00:36:03,574 - > 00:36:07,494 "Your, your portion of fund seven is worth eleven and a half 914 00:36:07,494 - > 00:36:10,795 million dollars." eleven and a half million dollars probably 915 00:36:10,795 - > 00:36:11,795 plus or minus 916 00:36:11,855 - > 00:36:12,315 rory-liebhart_1_05-15-202: Yeah. 917 00:36:13,144 - > 00:36:15,644 big-ed - big-ed-_1_05-15: because that val- underlying valuations 918 00:36:15,644 - > 00:36:21,235 of the companies within there are s- are so subjective both in 919 00:36:21,235 - > 00:36:25,335 terms of value, uh, which Rory noted, you know, it's tough when 920 00:36:25,335 - > 00:36:27,784 you've got all these components in there that you could go, 921 00:36:27,784 - > 00:36:29,295 "Well, you know, what's the liquidity? 922 00:36:29,295 - > 00:36:35,215 What's the non-liquidity premium?" in terms of timing you 923 00:36:35,215 - > 00:36:40,125 know, that subjectivity really does provide a lot of, you know, 924 00:36:40,125 - > 00:36:42,784 like, like I said, plus or minus twenty percent would not... 925 00:36:42,784 - > 00:36:45,494 To me is actually probably a conservative estimate of how 926 00:36:45,494 - > 00:36:47,844 much that value can be in swing 927 00:36:48,005 - > 00:36:48,364 rory-liebhart_1_05-15-202: Yeah. 928 00:36:49,469 - > 00:36:50,530 emily-sander_1_05-15-2026_13: So that's kinda like what I heard 929 00:36:50,530 - > 00:36:51,800 about nutrition labels, 930 00:36:51,954 - > 00:36:52,514 rory-liebhart_1_05-15-2026_: Oh, really? 931 00:36:52,719 - > 00:36:54,650 emily-sander_1_05-15-2026_1: by, they said like 40 to 50%. 932 00:36:54,760 - > 00:36:56,710 I was like,"40 - like, but then 933 00:36:56,835 - > 00:36:57,155 rory-liebhart_1_05-15-2026_1: No way. 934 00:36:57,155 - > 00:36:57,864 I didn't know that. 935 00:36:58,025 - > 00:36:58,215 Huh. 936 00:36:58,385 - > 00:36:59,284 Not, not surprised, though. 937 00:37:00,369 - > 00:37:00,750 emily-sander_1_05-15-2026: Yeah. 938 00:37:00,789 - > 00:37:02,289 It, it - Yeah. 939 00:37:02,329 - > 00:37:04,989 I mean, that might be for dramatic effect, but I think 940 00:37:04,989 - > 00:37:07,369 there is like a argument for like, hey, it's probably like 941 00:37:07,369 - > 00:37:11,380 plus or minus 10%,'cause like, I don't know, like a potato or 942 00:37:11,380 - > 00:37:13,719 something, like a different sized potato or like a package 943 00:37:13,719 - > 00:37:15,429 of something might not have the exact 944 00:37:15,625 - > 00:37:15,934 rory-liebhart_1_05-15-202: Yeah. 945 00:37:16,335 - > 00:37:16,755 You know what? 946 00:37:16,840 - > 00:37:17,269 emily-sander_1_05-15-: whatever. 947 00:37:17,375 - > 00:37:19,755 rory-liebhart_1_05-15-20: Here's a, here's one takeaway that if, 948 00:37:19,755 - > 00:37:21,914 if, uh, one of our listeners is out there and they're in a 949 00:37:21,914 - > 00:37:24,965 meeting and somebody hands them a deck with all these 950 00:37:24,965 - > 00:37:29,465 performance metrics and they wanna sound smart, they can say, 951 00:37:29,494 - > 00:37:33,059 "Hey Are these values based on fundamental analysis or is this 952 00:37:33,059 - > 00:37:34,039 a GAAP basis? 953 00:37:34,960 - > 00:37:35,900 And you can sound smart. 954 00:37:36,650 - > 00:37:38,909 And I don't know what you can do with that information based on 955 00:37:38,909 - > 00:37:41,940 the answer you get, but you can sound smart asking the question. 956 00:37:43,579 - > 00:37:45,079 emily-sander_1_05-15-2026_1: You can check the smart box. 957 00:37:45,079 - > 00:37:45,550 Check, check. 958 00:37:46,389 - > 00:37:50,489 Um, what, what is this part of the calculation called again? 959 00:37:50,489 - > 00:37:52,210 So there was like impairment on the credit side. 960 00:37:52,210 - > 00:37:52,619 What is like 961 00:37:52,909 - > 00:37:54,068 rory-liebhart_1_05-15-2026: Mark to market. 962 00:37:55,579 - > 00:37:56,940 emily-sander_1_05-15-2026_: mark to market? 963 00:37:57,150 - > 00:37:58,590 So people can be creative in 964 00:37:58,688 - > 00:37:59,068 rory-liebhart_1_05-15-2026: Yep. 965 00:37:59,250 - > 00:37:59,900 emily-sander_1_05-15-2026_13: to market 966 00:38:00,708 - > 00:38:00,929 rory-liebhart_1_05-15-2026: Yep. 967 00:38:01,030 - > 00:38:01,760 emily-sander_1_05-15-2026_13: or analysis. 968 00:38:01,784 - > 00:38:02,065 big-ed - big-ed-_1_05-15-2: sound 969 00:38:02,199 - > 00:38:02,449 rory-liebhart_1_05-15-202: Yeah. 970 00:38:03,429 - > 00:38:04,949 Truly. 971 00:38:05,409 - > 00:38:06,780 emily-sander_1_05-15-2026_13: I, in my head, I'm gonna be like, 972 00:38:06,780 - > 00:38:09,730 that is like in the Olympics for figure 973 00:38:10,099 - > 00:38:11,059 rory-liebhart_1_05-15-2026_13: I like your analogy. 974 00:38:11,108 - > 00:38:11,509 I do. 975 00:38:11,769 - > 00:38:12,849 emily-sander_1_05-15-2026: score that people 976 00:38:12,949 - > 00:38:13,199 rory-liebhart_1_05-15-202: Yeah. 977 00:38:13,309 - > 00:38:13,480 emily-sander_1_05-15-2026_: it's 978 00:38:13,599 - > 00:38:13,978 rory-liebhart_1_05-15-202: Yeah. 979 00:38:14,000 - > 00:38:14,030 emily-sander_1_05-15-2026_130: a 980 00:38:14,248 - > 00:38:15,579 rory-liebhart_1_05-15-2026_: His smile was good while he did the 981 00:38:15,579 - > 00:38:16,208 triple lutz, 982 00:38:16,239 - > 00:38:16,809 emily-sander_1_05-15-2026_1: All right. 983 00:38:16,938 - > 00:38:17,418 rory-liebhart_1_05-15-2026: More score. 984 00:38:17,628 - > 00:38:17,809 Yeah. 985 00:38:18,688 - > 00:38:18,898 Yeah. 986 00:38:19,000 - > 00:38:19,369 emily-sander_1_05-15-2026: Yeah. 987 00:38:20,300 - > 00:38:20,630 Yeah. 988 00:38:21,030 - > 00:38:22,559 The performance was, was, 989 00:38:22,568 - > 00:38:22,958 rory-liebhart_1_05-15-2026: Yes. 990 00:38:23,378 - > 00:38:23,728 Yes. 991 00:38:23,878 - > 00:38:26,608 I was moved by this mark to market valuation. 992 00:38:28,208 - > 00:38:31,989 I am moved to commit two billion more to your fund. 993 00:38:31,989 - > 00:38:32,829 I'm so moved. 994 00:38:33,369 - > 00:38:33,818 Yes. 995 00:38:35,858 - > 00:38:36,338 emily-sander_1_05-15-2: Awesome. 996 00:38:36,378 - > 00:38:36,889 Well, I feel 997 00:38:37,239 - > 00:38:37,789 rory-liebhart_1_05-15-2026_: Oh, good. 998 00:38:37,789 - > 00:38:38,000 Good. 999 00:38:38,070 - > 00:38:38,349 Yeah. 1000 00:38:38,478 - > 00:38:38,809 emily-sander_1_05-15-2026_1: Ed. 1001 00:38:39,110 - > 00:38:39,619 rory-liebhart_1_05-15-2026: Yep. 1002 00:38:40,099 - > 00:38:40,630 Thanks, man. 1003 00:38:41,125 - > 00:38:42,494 big-ed - big-ed-_1_05-15-2026: Go from triple luts to triple 1004 00:38:42,619 - > 00:38:44,059 rory-liebhart_1_05-15-202: Yeah, back to triple putts. 1005 00:38:47,168 - > 00:38:47,289 That's, 1006 00:38:47,340 - > 00:38:47,550 emily-sander_1_05-15-2026: there 1007 00:38:47,639 - > 00:38:48,871 rory-liebhart_1_05-15-2026: that was pretty funny 1008 00:38:54,346 - > 00:38:57,351 If you enjoyed today's episode, please like, share and subscribe 1009 00:38:57,351 - > 00:38:59,001 wherever you get your podcasts.