Latest / Exit Algorithms / Private Credit, AI Risk & M&A in Eastern Europe | Petar Posledovich (#51)
Transcript
- speaker-0: Welcome to exit algorithms, the podcast where we decode what it really takes to unlock growth, streamline operations and prepare your business for a high value exit. I'm your host, Pete Vera. And today I'm excited to introduce Pidar Postletovic. He's a licensed investment consultant, MIT trained, certified in AI and machine learning and for finance and the founder of Wolfstream limited. Wolf Team Limited, excuse me, an ⁓ &A advisory capital raising and valuations firm focused on Eastern Europe. Peter, excited to have you. Welcome to the podcast here. speaker-1: Thank you for having me, Peter. It's also great to be joining you. speaker-0: Yeah, absolutely. Yeah, excited to get into this. Could you, do you mind starting off? Could you share for listeners a bit about your background? yeah, what led you to start Wolf Team? speaker-1: Basically, I have a degree in bachelor's and master of ⁓ in applied mathematics, mathematical modeling in economics, ⁓ ⁓ I have 15 years in the banking in Bulgaria, predominantly corporate investment banking, working of time as a market counterparty analyst, chief expert, ⁓ senior expert also. And in the local branches of foreign banks like IMG wholesale banking, Unicrate, the Bull Bank, Hungary, DSK Bank, the last three years in KBC United Bulgarian Bank, ⁓ it's subsidiary of the Belgian Bank, the largest bank, second largest actually. And after 15 years in banking, I decided to... start my own firm, an investor making advisory boutique, offers ⁓ acquisition advisory, capital markets raising and corporate finance valuations, and also in the AI modeling. I'm also trying to offer. And basically working ⁓ small mid-sized and sometimes large corporations in Bulgaria and Eastern Europe and also working with some Western Western European companies to them raise capital and perform multi-substantial That's basically it, nutshell. speaker-0: Yeah, that's awesome. Big background in finance and a lot of industries I'm sure help you with clients. I'm curious, know, lot of our, most of our listeners are US based. What are some of biggest ⁓ industries you work with Eastern Europe? speaker-1: active in ⁓ financial technology and artificial intelligence. I've also worked with the Spanish US based startups. So I have some experience with US startups US ⁓ venture capital firms. And also ⁓ I US private equity firms. So basically I'm also trying to do to approach US investors also to ⁓ finance capital raising of the startups I'm working with. And basically the main, I'm now in financial technology, in artificial intelligence, also in last mile delivery, online merchandising, so to say. ⁓ And also I've been in real estate and ⁓ I've been active in merchandising also. So basically. If you take online merchandising, real estate, these are main sectors I have worked in. speaker-0: Yeah. Wow. They have a wide variety of industries. That's awesome. Your skill set can apply in a lot of different ⁓ I'm sure. Yeah. I'd love to talk about ⁓ raising a little bit. When does it make sense ⁓ to for different types of credit, private credit, PE versus traditional bank loans? How do you advise your clients? speaker-1: Basically, maybe you can follow the news now the private credit private equity industry is facing some challenges because basically one the benefits of going to private credit to the private equity firm is that the ⁓ client the have been turned down by banks. ⁓ They are bankable so to say because then They have to take out loans on very high interest rates like 7 between 7 and 15 percent and banks do not want to deal with such high yield loans. So this is where private credit comes in the big players like Blackstone, KKR and the Europeans, EQT, Partners Group, Texas Pacific Group also in the US, RS Blue Owl. ⁓ And for example, RS Blue Owl and the moment having some difficulties, ⁓ they stopped the redemption from some of their funds. Blackstone also has limited redemption. BlackRock has written down a loan to Zero from 100 % just ⁓ three months for like 50 So there are some problems in the sector because... ⁓ the private equity firms have lent out at very high interest rates. And just if you take it like in units or in ⁓ examples, for example, ⁓ normal that one or two firms like the Tricolor and firms difficulties. and they couldn't repay their loans like market financial services, the MFS European loan lender, and couldn't their loans and private credit firms suffered. that's true brands, ⁓ MFS financial services. These were the ⁓ last examples private lenders faced difficulties. ⁓ had to write down their loans to zero and they just wrote them off because these companies went bankrupt. But the sector, think one of the main things about the private credit sector is it's exposed to AI and to a large extent because in the last seven years, partly to beat the market, partly because this is the next great thing, private credit firms have lent tens of billions, not hundreds of billions of money to AI, for example, data set the build outs to ⁓ smaller medium-sized technology companies, basically more technology companies and all this creates ⁓ a bit of concentration risk in AI. So I think private credit will really be heard only when... the boom turns into a bust like a .com boom ⁓ and and ⁓ if ⁓ AI exists and if it pops, then the private credit firms will really have to write down maybe not only tens of billions but hundreds of billions of dollars for the whole industry's value. ⁓ So as long as the AI boom ⁓ or expansion goes on, private credit and private equity firms should be OK, even though they have these last unfortunate failures of true the tricolor, ⁓ market financial There will be such unique examples of companies failing just because they are over-leveraged or there is fraud in some cases. just the nature of the private credit business of giving out loans from 7 to 15 % interest rates predisposes for some failures. But the private credit industry should... whether this is okay and they should continue to prosper even though their stock prices have fallen like more than 30 % from their peaks due to mainly such the last troubles of the sector. But as long as the AI expansion goes on, private credit firms will be able to make good returns on de ibeses. speaker-0: Okay. Yeah. Fascinating. ⁓ I did some research too. I saw you, you write a lot of articles about this topic. yeah, really curious, you know, so why do you, why is it happening? Is it because of the uncertainty in the market with the disruption of AI? Is that the primary reason or is it have to do with other, you know, other factors like global and political or anything like that. I'm curious. speaker-1: Yeah, ⁓ first it was because of color and the market financial services and the other Unique failures of firms which Which private credit had the large exposure and because as one of there is usually the belief if there is are or two failures there'll be more and that's why investors first portfolio investors started ⁓ running the exits by selling the stocks of private equity but private firms like big like kkr like blackstone like tpg ⁓ rs ⁓ equity europeans and the partners group and Also, of the clients, some of the asset management clients, especially the high network individuals started pulling out money from the funds. That's why one of ⁓ major events was Blue Owl's ⁓ funds holding redemptions. And this was everywhere in the news and it caused the stocks of the leading credit and private equity firms to fall. Yeah. for example, Blue had to sell 1.4 billion of assets to ⁓ North pension and insurance companies to finance the redemptions. And lately BlackRock, is now top five for, with certainty in the world as in private credit, and they were expanding, they also ⁓ wrote for example, $50 million loan to zero when The same loan just three months ago was on the books at 100%. And all ⁓ two colors, big brands, microfinancial services, Blue Owl holding redemptions, ⁓ Blackstone redemptions, BlackRock writing off a ⁓ loan to all this cost the stock of ⁓ the largest firms first to start with two color big brands. market financial services. And then this was exacerbated by the Blue Owl holding redemptions, Blackstone holding redemptions. And now finally, because people are worried that AI will disrupt software creation, software and many mid-sized software firms, which are basically the bread and butter of private credit and private equity firms. Investors started selling their stocks because they think AI will disrupt the code programming and software programming. Personally, ⁓ think is too much of a stretch to think that AI will disrupt to such an extent as investors maybe fearing the code development industry, software industry. But this is also, it was exacerbated by the fact that the investors have made some money, not some money, large sums of money, large percentage against, and they wanted to protect their gains by selling off software firm stocks and mid-sized and also large size. And last but not least, the AI sector to which private credit and The equity is exposed, is worried that the so-called hyperscalers Meta, Alphabet, Amazon and Microsoft are spending too much money. This year they are to spend around the four of them, $600 billion on AI ⁓ data build out and investors worried first that their profits will go down. ⁓ hyperscalers profits go down. Second, they are always exposing them to the sector. And third, they could become asset-heavy firms, which are basically becoming by investing in AI data centers. asset-heavy firms are carried ⁓ the market with lower multiples, lower price earnings, lower price sales, much lower than software companies, because the logic is, if you want to build a Yeah, that is after you have to invest a lot of money and it's much slower and stashed in the future return than building a software, software a service, a product or web page like Meta or software services like Microsoft Office or Alphabet, is also a web page with huge data centers attached to it like Meta's case. up to now, but to be first in AI, they want to invest hundreds of billions of US dollars in AI and Wall Street and other mainstay investors are worried that they overextended themselves. So this is in a nutshell what caused the private equity and private credit firms stocks to fall more like close now to 40 % from their peak. speaker-0: Wow. Yeah. Fascinating. Now, thank you for sharing all that. Really interesting. I know you're really involved in AI. You're really up to speed on all the latest. Where do you see it affecting, you know, well, we can start with your industry first, know, ⁓ finance. Where you see it really driving change? you know, there's a of hype as well. There's a lot of AI products that, you know, there's so many you can pick from, but where do you see it causing the biggest change in your industry? speaker-1: Many analysts say that professional services, accounting, consulting services will be deeply changed by AI. I think it can with many tasks and it can help with ⁓ routine tasks thus provide more time to cater to clients and ⁓ service clients, which basically why firms like Lamine and basically... ⁓ every firm why every firm exists, but to the professional service testing this applies to a bit higher extent because the reason we exist is to help clients realize value to create value and ⁓ I also with my try to create sustainable value ⁓ for the stakeholders. ⁓ who are touched by the transaction and to create sustainable value for the long term and for all stakeholders and not for the clients bottom but also for its employees, their families indirectly and for the whole by creating sustainable value. And this AI could help with a menial task with automating ⁓ example, ⁓ gathering tasks or with financial modeling. The PKA Chudge GPT and Anthropy have hired ⁓ former investment to help them automate some of the ⁓ investment banking tasks and it's going along as I can see and AI can help people like me and also basically I think every firm achieve what it ⁓ for to its clients better and to create sustainable value especially for ⁓ firm this the paying goal to create sustainable value and for stakeholders. Also to protect the environment, as you see, you have wind turbulence in the back of, the back of, in back. So basically we, for all stakeholders, including the environment, I try to sustainable value and ⁓ other firms should try to create sustainable value. we, so the business cycles get smooth. ⁓ are smoother and there aren't crisis before us. But, so AI definitely ⁓ is many processes in ⁓ many also in firms ⁓ like ⁓ They with mini-authas and data gathering and answering some questions. So AI changing our environment, our world, so to say, and it remains to be seen to what extent this AI change that is provoking, to what extent AI can the world, so to say.