Robert Griffith 00:06
Hello and welcome to Strategic Alternatives, the RBC Capital Markets podcast, where we uncover new ways to raise capital, drive growth and create value in an ever changing world. I am your host. Robert Griffith, Global Head of Senior Relationship Management. Joining me again today to explore these themes are Eric Wise, Head of Alternative Finance, and Jason Goss, Head of European Solutions and Structured Products. Welcome back everybody. Today we're going to focus on investor dynamics, capital flows, risk appetite in private credit, a market that continues to see strong demand as institutions seek scalable risk, managed returns. Eric and Jason, great to have you back on the podcast, and let's get started.
Jason Goss 00:55
Great thanks to be back.
Robert Griffith 00:57
So guys, which investor segments are most engaged in private credit today, and what are their key priorities. And looking forward, how do you expect these strategies to evolve? Jason, maybe over to you.
Jason Goss 00:06
Sure. I think traditionally, when we look at private capital firms in the investor segments that we traditionally see or would expect to be active, we'd immediately focus on the traditional big name players. But that would just be the tip of the iceberg. So it's not just the broadly diversified sponsors now, it would also be what we'd look at as our alternative credit firms, and there's a whole host of layers and regional and global players in that space that are going to be sophisticated alternative investors. But we'd also look at the insurance space, because companies managing insurance based capital –
they are very active in terms of looking at getting a more diversified and broader investment base within their portfolios. In terms of sponsors acquiring insurance companies. It's a whole allure of the quote on quote ‘permanent capital.’ So owning insurance companies is a good way to have some cyclical fortitude, for lack of a better term. It also brings long term, recurring management fees and the ability to invest in more illiquid assets and longer term assets. Hence the view to go towards infrastructure, real estate, renewables, et cetera. So the whole element of having private credit as an asset class that's really suited well for cash flow matching of your investments relative to your liabilities. So the insurance segment is a dominant force now, as well in the private credit space and private capital space. But quite similar to the insurance companies. Of course, you'd have your pension plans. They have similar approach in terms of their duration and their ability to seek illiquidity premium, they don't need the liquidity of the assets. So we see pensions behaving more like sponsors and competing for private assets as well. But not to be left behind are going to be our keynote asset managers, and we would all look at fees on liquid markets. Are getting tougher and tougher. Some things are getting it's a little bit more difficult to generate alpha in publicly listed markets, and things can get quite crowded. And to be quite frank, there's an ability to earn fees in this space. So there's a big focus on growing alternative sleeves within our traditional asset managers. And those traditional asset managers are getting a lot of mandates from managing things like insurance money. So pretty much most of the clients that we're speaking to are all speaking about and looking at the private credits and private capital space.
Robert Griffith 03:31
Jason, you did a really good job in the investor segment talking about key priorities. How are the end investors behaviors shaping the strategic value and long-term growth of private credit?
Jason Goss 03:43
They are looking for longer term liability matching assets. So when we look at positioning for sourcing of investments, or how investments are being structured for insurance companies and pension plans, they're looking for long term duration matching assets that are in appropriate format. So I'd say that the hunt for liquidity or illiquidity premium, so to speak, how is that going to change? It will be interesting to see how that illiquidity premium evolves over time. Now that we have more players looking for it. Is that illiquidity premium present and are clients being paid enough in the private markets for looking at less liquid assets or more concentrated positions. One of the seeking points of private assets, is having something that's less conformed, less public, so to speak, where people are looking for differentiated asset opportunities and have that accumulated in a portfolio to offer to their investing clients. So I think that the two key themes I would look at is, how does that illiquidity premium persist? And the convergence between public markets and private markets are, how do the opportunities for private investments persist over time?
Robert Griffith 04:55
Jason, that’s super informative on the investor dynamics, so to speak. Maybe I pivot over to Eric – internalize this a little bit. Let's talk about RBCs approach to facilitating growth and optimizing that client access.
Eric Wise 05:09
I think if we start with, what roles do we expect to play in the private credit space? It's obviously advising, using our balance sheet and then distributing risk. And as a firm, we have been very client centric. And so over the last several years, we've been much better coordinated, I think, in large part, because of the progress that we're making in areas like our senior relationship management function. And so, what we've really been doing over the last several years is transforming the way that we coordinate our capabilities with a sort of focus on using our balance sheet and then distributing risk to other parts of the market. If it's to the insurance the private placement markets with insurance carriers, if it's to the public markets through securitization through things like risk transfer or the participation or syndication of existing loan exposures, I think we've done a wonderful job of originating and distributing risk and holding risk where we believe we can get an outsized client return on the provision of our balance sheet. So, I think what we've done is really look at, how do we put the puzzle pieces together to have the greatest impact with our clients in a growing market segment, and at the same time generate creative risk adjusted returns for our shareholders? So it's really a theme of coordination and collaboration.
Jason Goss 06:36
It really is knowing your client, knowing what they're trying to achieve, and making sure that we're getting the right opportunities in front of the right clients in the right format, at the right time. And maybe at the right time is probably the least important, because clients would like to see consistent flows where they can source investment opportunities, because they are private markets, getting a sense of what is the flow of investment opportunities. So I think one of the things that we are currently spending a lot of time on, is how are we getting those appropriate opportunities in front of clients at the right time, and making sure that they are seeing not just one type of and getting pigeonholed into one corner of the market, but understanding what are the other asset opportunities, what are the other development opportunities, and how can they access different asset pools, and how can we match different asset pools with different liquidity pools?
Robert Griffith 00:06
Well, it is clear that RBC have a differentiated offering from our competitors. Maybe, let me ask you a little more granular, specific question. There's been a clear wave of tie ups between banks and asset managers. What's your view on that trend, and how is RBC thinking about strategic partnerships in this space?
Jason Goss 07:52
That is very topical. We started looking at this and having a broader group conversation about it late last year, and at the time, we had gone through to try to list off a number of the partnerships that had been touted around the media, and at the time it counted 17, and it's definitely ticked up since then. So we're talking about quite a few strategic partnerships that have been announced. And I think the reason for doing so has been about matching the right assets and right asset opportunities to the right clients. So if we have a borrowing client that's looking to raise or looking for an investment and we're looking to match it up with an investor, perhaps that the optimal investor may be Canadian pension plan, or maybe it's a UK insurance company, or maybe it's an alternative sleeve in Australia, with one of the Supras. So they're all a host of different client types that are seeking these investments but may not always be optimal for every situation that we're looking at. So, if I put my markets hat on, for having best execution for both our borrowing clients and our investor client, having a strategic one channel partnership, may not be optimal. It could be optimal, but it may not always be optimal. So what we want to do is make sure that we're positioning ourselves to be the counterparty of choice that's going to be getting best execution for all our clients on both sides of the borrowing and the investor spectrum.
Robert Griffith 09:17
Thank you, Jason. Team, what is RBC doing to help clients capitalize on private credit opportunities, from structured products to cross-market solutions?
Jason Goss 09:27
I’ll give one of the examples and I'll reference Mark Jordan, who's on our FIG Solutions team. So Mark is very, very in tune with matching adjustment for assets that are to get them eligible for matching adjustment treatment. If we get something qualified for qualified for matching adjustment, then it's an optimal capital treatment when it sits on an insurance company's balance sheet. And so all the different types of clients who then are managing insurance based capital would be incentivized to get assets qualified for matching adjustment. And there are different ways that we can do things from a structuring perspective and support the financial engineering comes into play. And an element of risk retention. There are other elements that you need to solve in terms of prepayment, quote, unquote spends clause, so to speak. So there are different ways that we can structure assets to make sure that they qualify, but then once they qualify, how can we replicate and build on that? So we would be focused a lot on making sure that, again, we're putting our structuring techniques, we're putting our balance sheet behind those projects, to make sure that we can be at the forefront of delivering private assets in optimal format for a client that's making an investment in the space So in terms of private credit opportunities we do have a global structuring team that would look at it from a cash flow structuring perspective. We have people in the securitization team. We have people in the LevFin team, whether or not you need to deal with a rating agency, whether or not you need to cash flow structure or repack structure. There are a whole host of different ways that we would do that. But that does draw upon a number of areas internally from a market’s perspective, to try to bring together solutions for our clients, investment objectives.
Eric Wise 11:00
And I would add to that that I think the profile of the relationship with private credit managers and investors is getting a bit more sophisticated. As our clients are now looking to deploy capital into a broader set of asset classes with a broader and more diverse set of goals and priorities. What's happening is the capabilities that they're asking us to deliver are being co-mingled, and a good example of that is we recently participated as the acquisition financing provider for a firm that wanted to buy a strip of GP stakes. And that type of transaction gave rise to a number of considerations. It gave rise to sort of contingent funding in the future. It gave rise to a cash flow analysis. It gave rise to a reliance on a counterpart, much like a derivative in. What ended up happening is, the team in investment banking was able to secure a mandate, identify the priorities, identify what success looked like. They brought in the alternate finance team in spread products to deliver an asset based financing facility that provided most of the acquisition financing. They brought in our corporate banking team to sort of develop a very unique and customized capital call facility. And then we integrated other features related to equity support letters that you might see in some type of margin financing. And we brought all of those capabilities and distribution, and we ended up syndicating this transaction. And so that transaction really transformed our standing with the particular buyer there, starting with, really, you know, our long standing relationship from an investment banking perspective, and then coordinating various capabilities into a very customized solution that really layered in the very best of what RBC had. So I think, you know, our clients are always going to want core products. But I think where RBC will have an ability to outperform is sort of, again, through the coordination and collaboration and identifying early that there are opportunities that no one part of the firm can deliver, but across the firm, we have the capability of organizing those pieces into a comprehensive solution.
Robert Griffith 13:21
Eric and Jason, you've made it really clear that we're helping our clients capitalize on this private credit opportunity. I think about the significant investments we've made as a firm, and how well positioned we are, whether it's on the financing, asset origination or strategic advisory side, to address these needs, and we're looking to help GPs and the portfolios and investors, and you've done a great job of pulling that all together in today's podcast. I'd like to end today's podcast touching upon future trends, just a few thoughts before we wrap this up.
Jason Goss 13:52
One of the trends most people are looking at would be focusing on the fact that private wealth markets are still quite under invested in private capital. And number of reasons for those, but maybe one of the primary ones would be what is an optimal investment vehicle to service the private wealth channels. And this the theme touches a number of things. we've seen the launch, and Europe has been behind the US, but even the ETF product, you see a hybrid ETFs now. We see CLO ETFs, a number of a number of delivery mechanisms to access a more broad investor base, rather than the bigger, larger, more institutional investor type. So how we look at fund solutions, how that impacts the assets again, in terms of delivery assets. The channels will get more complex or different considerations, but the amount that the private markets in private wealth tie up has been matched up is very light, and I think this is where a lot of focus is from our clients. This would be a lot of our considerations in terms of what that means for our origination and for our structuring and for our delivery of assets in the forward. But I'd say that's one of the areas that we'd be thinking about quite a bit in terms of how we help our clients in the future.
Eric Wise 15:15
Yeah, If I think about a comparative difference between the private markets and the public markets, the private markets tend to be more clubby, less diversified, less sort of syndicated across multiple parties, and certainly less visible. And so what that leads to is, how do we as a firm win mandates with our clients when there's fewer entities that are going to play a significant role in those transactions relative to a, you know, a broadly syndicated loan or well syndicated high yield bond or something like that. And so, we will win business because of two words, cadence and content. Being in front of our clients on a very regular basis with content that is interesting and will help them succeed with their strategy and their priorities. Cadence and content to me brings me back to information and advice that gets me to AI. And I do believe that as a firm. we are sitting on top of incredible value as it relates to our relationship, our transactions, our facilities, our exposures, our outlook, our organization. Harnessing information is really what's going to distinguish one bank from another. I'm a big, big believer in AI transforming the private capital market and the private credit market, and I think we have really the raw materials to do that very, very well.
Robert Griffith 16:46
Jason and Eric, thank you so much for your really informative conversation today.
You have been listening to Strategic Alternatives, the RBC podcast. This episode was recorded on May 30. 2025 listen and subscribe to strategic alternatives on Apple podcasts, Spotify or wherever you listen to your podcast. If you enjoyed the podcast, please leave us a review and share the podcast with others. Have a great day.