Listen: Masters of Risk | Video Episode 15: Risk Reflections: A Year in Review

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Yashi Yadav

Hi, everyone, and welcome to Masters of Risk, a podcast by S&P Global Market Intelligence. My name is Yashi Yadav, and I'm a senior analyst on the go-to-market team for our Risk Solutions business within Credit and Risk Solutions. And joining me today is Alisha Rappaport to do our 2024 roundup as we close out this year. I'm super excited to have you here today, Alisha.

Alisha Rappaport

Thank you very much for having me on this side of the camera. I'm Alisha Rappaport. I am the Global Head of Credit Solutions Marketing, sitting on the same team as Yashi in Credit and Risk. It's been amazing. We've had incredible guests, and we've been -- we've learned a lot over the years, I think. This is obviously our second video podcast.

So I'm really, really excited to wrap up the year this way and talk about what we've done in 2024, what have been predictions our guests have had and what we've learned from them along the way. So Yashi, remember our first guest was Katrina Dudley from Franklin Templeton. She had some really interesting topics she touched on that were top of mind for her. AI, cybersecurity, ES&G and some innovation drivers. So let's listen to Katrina.

Katrina Dudley

I think AI will have an impact on investing. And I think that you've identified there are good and bad parts to any type of new technology. Look, I think about some of the things that we do that can be done with AI. And I think that's the opportunity where we can have them write baseline commentary and then we review it.

But even with some of these technologies, you're right, we have to ensure that they're going out to verifiable sources. So we can't have an AI engine going out and pulling content that we can't verify or numbers that we can't verify. So I think that there still needs to be that human input. And there's also the sanity check on everything.

Alisha Rappaport

What are your thoughts, Yashi, the impact of the election on the market? Have we seen any new impacts from AI?

Yashi Yadav

Super excited to answer that. And yes, I do remember our conversation with Katrina. She was a great guest to have on, and I really enjoyed sort of hearing all of her insights and opening up sort of new perspectives based on her experiences and her years in the industry as a veteran.

So given my background being on the credit side of things, most of my thoughts around this and my lens will be from a credit focus. So I think taking that into consideration, given the election results from November, from the credit side, I wouldn't say we saw any specific reactive trends.

I know in the equity markets, we did see stocks rally generally. The same thing did happen on the credit side as well. But what I'd be curious about is, given the new tariffs that we're expecting to be imposed on China as well as other economies, is that price shock going to be absorbed by companies?

Or is it going to be pushed down to the end consumer? But again, I think that in general, it seems that the election results have a positive impact or at least it's looking like they're having a positive impact on the market currently.

And I think some of that may also be as a result of the anticipation of lighter regulation coming in the new year. And then sort of continuing on talking about AI from Katrina's perspective. That's been a very hot topic in 2024 and something that I agree with her on is that AI is not necessarily new.

It's always existed, but it's something that a lot of our clients are talking about now and across all markets. So whether it's the energy industry and its innovation from that perspective and their specific industry-specific technologies or insurers or asset managers, we're seeing the influence of it across the board.

Something that I think about when it comes to AI is the cybersecurity component. So sort of in tandem with what Katrina was saying, there's an immense opportunity for firms to use AI in a positive way through whether it's being able to absorb financial statements more efficiently to actually conduct your financial analysis, whether it's using AI to set alerts or set up some sort of alerting systems on earnings calls or press releases to bring to the top of your inbox if there's any sort of red flags that are coming up for a company that maybe you have some exposure to.

So those are some areas that I think of where AI can be incredibly helpful. but you also want to make sure from the cyber risk component, you're checking all the boxes to not leave yourself vulnerable to any risks that can then impact your reputation.

Alisha Rappaport

Yes. And I like the fact that she had said about the human in the loop, that that's a key piece that we still need to make sure that, that's in. So I think that was an important piece that she added. Let's listen to what Katrina says about cybersecurity and sustainability.

Katrina Dudley

I think you actually mentioned one of the areas we are very focused on, which is cybersecurity risk in terms of making sure that our companies have robust processes and Franklin Templeton has the same robust processes as well because data security in financial services and trust is such a big part of what we stand for as a company and how we operate.

So I do think that cybersecurity is the front of mind. It's been there for a long period of time, though. It's not some new risk that companies and everyone are paying attention to. On the geopolitical front, this is something in 2024 is very unique.

Over 41% of the world's populations are going to head to the polls this year. And that's a lot of potential for change. And it is not just isolated change. So you think about it, you get a new President in a country, particularly a big country or an economically significant country Prime Minister, for example, if they implement a policy, that policy not -- doesn't just affect the country.

It often can have ramifications outside of your own borders, and it can result in new policies. And I always give the example when Joe Biden announced the change in the United States to really invest in green and green infrastructure, how there was a response from Europe.

And so with these changes in government, I think typically, we've looked at whether or not there are going to be, for example, in the euro region, a rise of anti-euro sentiment, but also there is new policies where we just need to be aware of what's happening. And I think that this year is going to be very, very interesting, not just within the United States with our election, but across the world.

Alisha Rappaport

Do you think cybersecurity and sustainability will move -- has moved forward at all in 2024?

Yashi Yadav

So I think cybersecurity definitely has kind of what I was mentioning earlier. It is something that a lot of companies do either, a, have a sort of written document or official processes around how they want to assess the cyber risk, both internally, doing trainings amongst their employees, but also making sure there's not -- that they're managing external threats in an appropriate way.

And then on the sustainability front, I mean, absolutely, I think firms across the board, whether it's firms that have physical asset exposures that they need to be sort of thinking about in the context of sustainability of the component of ES&G. That's something that is top of mind for them, as, again, owners of those physical assets.

But also when I think about it from the insurers perspective or the asset manager's perspective, where they've actually got investors that care about where these managers are invested or exposed, they need to be able to really efficiently sort of quantify and then monitor that risk and then the impact that, that risk can have sort of on the portfolio and the results.

So it is, I think -- when we're thinking about sustainability, that's sort of one way that I think about it. And then we recorded, obviously, our podcast with Katrina earlier in the year since then an election has happened, there have been results that came of that election.

And so with the new administration coming into power in 2025, I think it's going to be interesting to think about our climate policy and how that's expected to change, whether there's really going to be a focus on the reduction of greenhouse gases or other environmental detriments per se.

And so the influence that could have on credit risk, I wouldn't necessarily think of it. It's not really short term. It's more of companies need to start thinking about the medium-term impact and the longer-term impact. So don't want to speculate whether that's going to be positive or negative, but still having it on your radar is something that should be an existing sort of process in your risk assessment for your portfolio.

Alisha Rappaport

Yes. No, that makes sense. I mean, do you -- what do you think about as far as like anything with cybersecurity for 2025? Any thoughts there?

Yashi Yadav

For cybersecurity, it's something that's existed. I mean, I think of McAfee and all of these systems that we were first uploading onto our computers in like the 1990s and the 2000s. And I think today, as an employee at a large firm, I have to go through training usually on an annual or biannual basis around how to not fall predator to phishing scams or things of that nature.

And data is increasingly sensitive, especially in the financial markets. We ingest a lot of data from our clients, right? And something that they always ask about is, is this going to be something that's been publicly available to other clients or individuals in other industries.

And so we make sure that we have systems in place where there are very clear guardrails around what can and cannot be accessed by an outsider or anyone outside of the firm. So I think that those -- that sort of framework is going to continue to develop in companies across different industries across the board if they're not doing it already.

And in addition to that, there's a lot of start-ups in the cybersecurity space that are coming into play to actually go in and sort of, again, measure what the risk is, not just internally for a company itself, but also who the company is doing business with because it's not necessarily just your internal systems, but it's how are you exposed to your vendors, to your customers, to your suppliers from that perspective.

Alisha Rappaport

Yes. No, that makes sense. So our third guest was Michelle Vincent. Michelle is the CEO of Mofilm. She had some great insights into career risks and being risk adverse and taking risks and then how the media and tech space has evolved. Let's take a listen to what Michelle had to say.

Yashi Yadav

What was it like at that time? And what did you learn coming out of it in the context of risks that maybe you didn't even realize could be present in the business? And how did the world change moving forward?

Michelle Vincent

I love this question. And that particular point in time is an interesting one. As I mentioned, there was something happening in the social media space. And I had been at Google 10 years at that point and had no plans to leave. Like I said, somebody reached over the fence and said, "Hey, it's pretty interesting over here." And the assessment at the time to take that risk to leave was, number one, making sure you leave your company on a high note.

So things are going well, leaving the team in a good place at Google was very important. But also just as importantly, it was a time of change at Meta when they were starting to set different priorities for the platforms that mattered the most.

When you're a tech company, especially in the FAN cohort, the expectations for year-over-year growth are high. They still remain high, but growing 15%, 20% year-over-year on a multibillion-dollar base is not an easy task. So often what happens are new product lines get launched. I mean, I could go on with my stories at Google. Anybody remember Google Plus and other things...

Alisha Rappaport

So what are your thoughts on what Michelle had to say?

Yashi Yadav

I mean, I think something that she sort of is saying without explicitly stating is making the right move at the right time and really taking opportunity when it sort of comes across your desk because there's always going to be room to grow and expand and learn and especially the way that our markets are evolving, you kind of need to stay ahead of the curve and make sure that from a knowledge standpoint, you're aware of who the up-and-coming players are in your market, who your competitors are.

Because if not, and this is kind of going a little bit tangential to sort of the Michelle conversation, but something that did come up in that episode was reputational risk. And so if you aren't aware of your environment and of what's going on in your industry, you risk kind of falling behind.

And so it's -- and that can then hurt your reputation. It can sort of prevent you from being successful and monetizing that success sort of as, again, that industry evolves and matures or continues to grow.

And so I think that, that's kind of where -- I think that still exists today based on the conversation that I had with her. And in the context of reputation, it's funny because throughout all of our episodes, I think this year, there have been a few aspects that have come up time and time again, and it's been technology, artificial intelligence, reputational risk being a factor.

And there was a linkage between artificial intelligence and reputational risk that Michelle touched upon, where if you are not being very keen and very disciplined in how you're using AI, you risk actually -- you risk the reputation of the company more and it causes more harm than good, which then kind of throws -- when we think about the balance of risk and reward, it kind of throws you off in that perspective.

And I know Michelle's background is actually a bit more on the marketing side. So Alisha, I was just curious, in the context of AI and marketing, what are your thoughts on that and kind of the scope of that conversation, how it's expanding coming into sort of what you've seen in 2024 and what's to come in 2025?

Alisha Rappaport

Yes, it's a good question. I think the one thing with AI and marketing is really looking at ways that we can use it. And I know Michelle and I have talked about it, too, when we were talking about it in our kind of our pre-call with her is what are the things that are being -- implementing using AI and how companies are looking at the technology and also the risks, right?

AI isn't always regulated. That's a concern for larger companies, big corporations. And how are we going to use AI to be able to market and protect their data and information. So as Katrina said, it's been around. I do think it's evolving. I think there's going to be much more GenAI and AI tools that will be coming of use, especially in the marketing space in 2025. So exciting things to come.

Yashi Yadav

So exciting, yes.

Alisha Rappaport

We spoke a lot about diversity around careers and transition. One example was Katrina's journey. This was when we did our first video podcast with a women's panel. So let's take a listen to hear what Katrina had to say.

Katrina Dudley

I started an accounting firm. So I used to do valuation work for couples that was [indiscernible], we valued their private interest. And I like doing that. So I worked out where in the firm I could do that full time. And then I transferred from our Sydney office of an accounting firm into L.A. and then on to New York. And when I arrived in New York, I did my MBA part time.

So I did that. And when I was doing that, I realized I love valuation, but I want -- I always felt like when we turned up with the client, they really didn't want us there because we were valuing things like in the rearview mirror.

We were doing things for the 10-K. So I had a very unique business valuing non-competes, and I loved it because we sit with these chief executives and senior leaders and work out if you were to damage the business, what would you do?

Like -- and it was really tough for them to kind of think about doing that, but we get them to talk about where the vulnerabilities were. And that's now what I do full time. I mean when I became an analyst and then a portfolio manager as you're analyzing companies, you're assessing where the vulnerabilities are and then you're also looking at what they're worth in the future.

And I get that for 21 years. And then just recently, I've been a portfolio manager analyst for a long period of time and as that challenge. So an opportunity opened up to work in our public market investment team, just helping our investment person -- investment teams become better.

Alisha Rappaport

What are your thoughts around what you learned about the transitions from all of the panelists?

Yashi Yadav

I love that episode, by the way. And it's funny because that was a women's panel episode, and this effectively is also a women's fan episode. But yes, I mean, I think that speaking to Katrina and Rachana and Meredith in that episode, just going back to what I said earlier, I mean, it's really about making the right move at the right time, but something that all 3 of them spoke about was also leveraging your skill set and really being able to identify, okay, in this next opportunity, what can I bring from the skills that I've developed thus far in my career?

And then how can I continue to expand those? And then what new can I add to my toolbox to then help continue to propel me forward? Because the thing with careers is that they're not -- it's not a typically like straight journey, right? Like it's not a road from point A to point B. Sometimes you go in one direction, then you backtrack a little bit and then somewhere down the road, you find yourself, "Oh, right, I did this one piece of it 5 years ago," and now it makes sense to kind of maybe revisit that aspect of it.

But I think what all 3 of them had was the confidence to kind of propel forward and the confidence of being, I won't say the only woman in the room, but one of very few women in the room and still making sure that they were intentional, well prepared, well versed on their -- in their fields to actually drive not just a conversation where they're going along with the consensus.

But actually being able to challenge a common school of thought because even from the investor's perspective or from a credit risk perspective, if you're having the same opinion as what every other analyst is saying on the street, how do you really plan on achieving alpha? You need to have a differentiated view and have sort of that component of -- I had a professor that used to always say, credit is an art and a science.

And so the science is the research, right, the numbers, the data, everything that's backing this viewpoint. But the art is how do I take this? How do I add my own flavor to it? And what can I bring to the table to really make it not just a good opinion, but a great opinion and then deliver that opinion with conviction. So I think that, that would be one word that I would use to describe all 3 of them is they had a lot of conviction when they were making these transitions in their respective fields, and I admire them as well.

Alisha Rappaport

Yes, me too, and I agree with that. I think that they definitely had that journey for sure. We talked about risk across industries. So -- and how do we get comfortable with risk. Let's listen to Meredith's response to that.

Meredith Beddow

One thing I want to say about risk and transitioning and making these big moves in our lives and our careers, especially as women. I found it was really important for me to get comfortable with risk, and I'm sort of realizing this now. I actually read I saw a counsel of some folks at the time, is my first career change. And I spoke to some trusted folks, and I actually read a book, a small book field of here with do it anyway. It's a real nice little leaflet, but -- just these things to help me realize that I could do more. So I just want to say that.

And so as far as the industry is concerned, I mean, there's a variety of risks. I mean we -- our product is a desktop sort of server-based, web-based rather. So there's tons of data. The data has to be right. I mean there's a whole ecosystem within making sure the product is correct and delivering the information and the data. And of course, on the other side, we productize the credit ratings, credit risk insights from S&P Global Ratings.

And it's been fascinating how they manage and how they feel about risks and some of the top areas they're looking at. I guess just one thing I'd say, and I can't come up with this myself -- I can't take credit for this rather, is that knowing what -- being able to see around corners, which is quite an interesting idea that is not to be too comfortable with the risk you know.

Alisha Rappaport

Interesting points. Let's listen to Rachana.

Rachana Kothare

And I think of career risk, making those pivots are kind of looking at what am I interested in doing next and where do I see myself going with it? And what's the cost of not doing that. And so that essentially drives some of my decision-making when I made really big switches out of industries and out of job functions and locations even.

So I think that kind of underlines the big jumps in career risk taking, if you will, to point, not being risk averse, but just being aware of what you're doing and why you want to do it. The other factor that you mentioned is reputation, which I think is critical. So Amazon itself handles enormous amounts of data for everyone, whether it's in the cloud, whether it's your shopping habits. And so we're super, super aware of being very careful with reputation.

We want our customers to be overjoyed when they use our services and products. We want to make sure that they're safe and risk free and they can go to sleep at night knowing their information is secure. So that's very critical in terms of having the lens of what you do, what you say and how it affects all of your customers that depend on your day-to-day. And then maybe the last piece of that is looking around the corners.

So in my current job, I would say that's almost my job description. And it's a really hard thing to do, honestly, because when we think about the pace of change, it's accelerated, right? Things might have moved slowly at some point, they were still changing. What I want or what I observe at least is the rate of change has moved up exponentially. We went from, hey, I can use Excel to I can use supercomputers to now I can use GenAI and it does a bunch of stuff for me.

So keeping abreast of all that and making sure you're looking around the right corners, not just every corner all the time is kind of a very critical piece of that job function and understanding the risk therefore to the company, to your customers, to the work that you do, I think manifests itself in my day-to-day work and how I think about this.

Yashi Yadav

I thought it was interesting that they both corners. I love that. I think that is one of my favorite quotes from the episode because it's so true. And I mean, I think transcends career, like I think it's also in your life, it's not about looking around -- I mean, it is about looking around the right corners.

But it's also knowing which corners to focus on because in today's day and age, you're -- there's so many different directions where situations arise from, where risks arise from. And you can't boil the ocean. So you really need to know and be super hyper aware on where to look and how to assess. But I didn't mean to cut you off.

Alisha Rappaport

No, no, no, it's totally fine. I mean I just thought it was such an interesting synergy that they both use that analysis about it. So can you comment on being a woman in the industry and also risk within your industry, our industry specifically?

Yashi Yadav

I think women have made immense strides in the financial services industry. In general, I mean, I see them all around our floor. We've got great leadership here at S&P. Clap to our CEO, Martina Cheung.

Super excited about that. I've been really lucky that I've had a lot of great women mentors in this industry that were really able to help guide and navigate -- help me navigate that conversation around how to develop a certain skill set, how to ask the right questions and how to ask intelligent questions because when you're asking those to the right person, you really learn a lot about just the business and also the culture of a company.

So I mean, I've had -- I've been lucky. I've had a great journey so far, and I think I hope to pay it forward to other women that are entering the financial services industry. When I think about industry risks, kind of the comment I made earlier about not being able to boil the ocean I do think that what we like to tell a lot of our clients is you need to think about all the different levers that sort of influence and impact the credit risk for a particular company.

I can give you a laundry list of ratios that could come from financial statements. There's different business risk profiles. There are sovereign risk, then outside of that, there's all the qualitative factors in terms of how many subsidiaries do they have, where are the revenues generated from.

But it really comes down to what is going to be the most predictive and helping you very efficiently and quickly assess the risk for the firms in your portfolio or the firms that you're exposed to. And the biggest piece there is consistency because AS 2024 and every call that I jump on still has clients -- still has me working with clients to figure out, hey, I have these 5 different data sets that I'm using and trying to get a singular metric or a singular viewpoint from.

So just making sure that there's a framework that's consistent across the board. And then, of course, I mean, again, when it comes to specific industry, there's going to be the cyclicality component. There's also going to be -- there's different types of exposure, so you may have a longer-term exposure or a shorter-term exposure.

Alisha Rappaport

Yes. No, I think it's good. And I like the fact that the pay it forward, going back to your comment about like women in the industry because I think that's a really important piece as far as what we can do. I mean I've had some really great women mentors as well. And I think that anything that we can do to continue the next generation of women to bring them into this, especially in the financial services industry. Okay. So let's listen to Matt's comments on how insurers are thinking about risk.

Matthew Reilly

At the end of the day, our firm and what we're trying to do is we're investment professionals. And really investing is about risk taking and finding risks that you feel as if that you're well compensated for and that makes sense given what you're trying to achieve with a given portfolio. So it's really focusing on what the objectives are at the end of the day.

One of the things that we've seen is an increased interest in understanding how different investment strategies mix with the rest of an enterprise's business. So when we think about the portfolio, we're not just thinking about, okay, how does your investment performance move over a certain period of time. We're really trying to think about how that matches with more broadly the risk that an insurer is taking.

Alisha Rappaport

So Matt Reilly, who is -- works at for Conning. He had some really interesting things to say, I think, throughout his podcast. So how do you -- how are companies assessing risk and looking at investment strategies and how do they mix with other sides of the business?

Yashi Yadav

Really, in today's markets, you can't -- I mean you can have silos. And obviously, in certain industries, you have to have sort of siloed areas of the business. For example, we, on the Market Intelligence side, don't explicitly work with our analytical ratings team. But that being said, we do partner with our commercial colleagues on the side of the business.

And I think similar to other firms, when you're thinking about the risk that a certain business line is taking, you have to think about it as a piece of the pie and how it influences and impacts the overall risk appetite for the parent company as a whole.

Because if not, it gets very easy for things to get out of hand and then maybe you're having regulatory compliance issues and that comes with its own set of fees and fines and you don't really want to have to deal with that because of the domino effect of that happens and then it influence -- it comes to become a market headline, which then could influence your stock price. It could influence your ability to take on more debt.

I mean, the cost of debt is already high with the current interest rate environment. Do you really want another reason to make your expenses costlier. So I do think that the interaction between different business lines and the constant communication is critical when thinking about risk from a holistic standpoint.

Alisha Rappaport

Yes. No, that makes sense. And do you see that there is similar trends amongst the clients that some of the clients that we have?

Yashi Yadav

Yes, definitely. But I think it's a very healthy and beneficial way to do business is having those introductions to different teams within an organization, right? Because while there may be a team at an insurance company or, let's say, a large industrial firm where we think, okay, we can talk to their treasury department.

But then there's also the cyber risk department and there's the third-party risk department and then maybe they're doing some sort of project finance work. I mean there are so many different areas in which risk comes into play, and I'm sure that there's a team at the corporate level that's responsible to kind of aggregate all of that and have a singular view.

But I think being able to have transparency for all of those different areas of risk and see -- because there's going to be overlap in some settings, too. I wouldn't say it's more efficient to have kind of a singular view than to sort of duplicate processes.

So in summary, I think that from an efficiency standpoint, from a time-saving standpoint and a cost saving standpoint, it is increasingly important to kind of pay attention to that interconnectedness of risk. across different businesses and different projects or areas or exposures, I would say?

Alisha Rappaport

Yes. No, I think that's a good point. Also, Matt spoke extensively on trends concerning clients and what was top of mind. Let's revisit some of his thoughts.

Matthew Reilly

Some of the concerns that you typically see within the insurer base in terms of how it's impacting the business tend to be some of those bigger secular trends and challenges. And so I'll use inflation as an example. That was a really interesting use case. And obviously, it's tied to the impact on interest rates that we've seen over the past few years.

But that was something that for some insurers was really not just pushing interest rates higher and devaluing their bond portfolio, but it could also mean that they had to be increasing their expenses as a business, and they could be having to pay out higher claims as well on property risks that they might have underwritten.

So that's a real double-edged sword, particularly when you start to talk about the property and casualty industry in particular. The other one that I think is really closely related is interest rates. And within interest rate, it's been a much more volatile period, and there's been a lot more uncertainty around that trend compared to what we've seen over the past couple of decades leading up to maybe just a couple of years ago.

And so I think there's this question about how persistent interest rates are going to be at a maybe higher level and the overall path. But what we've seen is that insurers are still much more thinking about those investment impacts, I think, in terms of a longer-term view.

Alisha Rappaport

When you think about what he just said, do you think it's like a long or a short term in credit portfolios based on your observations?

Yashi Yadav

It's interesting because Matt is talking about it from the insurers perspective and sort of their investment mix in their portfolio. And when I think about credit portfolios, I would agree that the trends do still tend to be secular.

So it will be different for airlines versus, let's say, like medical companies versus, say, a different industry. But that being said, I wouldn't say that the view is either/or in terms of shorter term or longer term because it really just depends on the mix of the portfolio and the mix of your exposures.

So kind of a general rule of thumb that I think about from a credit standpoint is the longer the duration of your exposure or the longer that you're sort of holding on to that risk, the more -- the actual -- the likelihood we would say like PD -- like percentage PD or the percentage probability of default goes up, the likelihood of default increases just because you can kind of have, I would say, a relatively confident prediction on what the environment is going to look like in the next 90 days or the next year.

But as that time line and that time horizon starts to go out to like 5 years, 10 years, there's a lot that can happen, right? I mean, 2 election cycles, for example. So I would say it really just depends on the nature of the exposures. And so it's so individual to a firm's portfolio composition, their risk appetite and then the type of assets or firms that they're exposed to from the credit lens.

Alisha Rappaport

Yes. No, I think that makes sense. So our last guest that we had in 2024 was Catherine. So we asked Catherine about her experiences with firms facing budgetary constraints. Let's hear what she had say.

Catherine Kemnitz

Investors will take a certain level of risk when they can quantify it. But when you can't, that creates a lot of problems. And what can also happen in the transaction then is your investors is going to protect themselves. And so there may be a number -- a certain amount of the purchase price in investment capital that actually is going to go into escrow into protected space so that should the liability arise, the investors are protected.

That money is money that you can't invest in your business or liquidity that you can't count on as your former investors are trying to get out. So it creates a ton of tension. And every company carries with it a certain number of liabilities and risk. And that's okay. But the legal aspect of it is, have you been able to draw a circle around the exposure that liability represents?

Can you articulate to your investor that you're on top of it, that you understand that risk, you've taken it consciously and that it is not sort of a grenade that they don't know when it's going to blow up and that it's going to be on them to then clean up.

Alisha Rappaport

Yes. I mean, well said, Catherine. So can we talk about the balance between risk and reward, Protecting investments goes deeper than the balance sheet. We need to think about qualitative risks. Yes.

Yashi Yadav

And I think something that we were talking about because I remember this conversation with Catherine, her industry, I found to be very interesting because it wasn't one that I'd necessarily been exposed to prior to our conversation with her. And we were talking about budgetary constraints.

And so what she just spoke about was this is the quality of insights that you kind of need when you're a smaller firm looking to get your initial seed funding and then ideally either get acquired, stand on your own feet, maybe IPO, et cetera, whichever direction you decide to take.

I can relate on our side of the business with coming up against those budgetary constraints. So generally, my understanding from -- based on my conversation with her was that it's important to -- and it's difficult to do on your own, but really kind of have a bird's eye view on the interconnectivity of all of these risks.

So the quantitative is something that -- I wouldn't say it's easy to do, but it's definitely something that's a bit more structured and straightforward and something you can do in-house. But it's really those qualitative components that she was just talking about that you kind of do need an expert sort of an individual that can sit, bring the magnifying glass and do a deeper dive.

And to her point, it's not just about identifying the risk, but how do you assess it and then how do you explain that risk to really demonstrate an understanding and then make a decision based on that budgets are something that are extremely material when it comes to decision-making on whether or not you want to bring someone like her on to have the sort of legal counsel, bring someone like us on to help the credit risk component.

But all that being said, without having sort of an allocation of capital towards those resources, it can cause just a little bit of hesitation around having complete confidence on sort of the exposures that you have within your portfolio. So I think what it comes down to at the end of the day is being able to do your job well, but then also have it benchmarked against experts in that field to really ensure success.

Alisha Rappaport

Yes. Yes. No, I think it's a very valid point that you -- it's always good to bring in the experts to help with these things. Okay. So this is our 2024 wrap up. What are some of your outstanding questions from 2024?

Yashi Yadav

Oh my gosh. It's been a really interesting year. I'll say that I think the private credit markets just seem to be expanding at a -- I don't even know, exponential pace, I suppose. So just thinking about the Apollo, Citigroup partnership to have those 2 firms access more capital in more emerging market economies. HPS was just acquired by BlackRock. That's like one of their 3 major deals that they did this year.

So when I think about that and the fact that the market is anticipated to grow to $3 trillion in the next 3 years, I mean, just think about that growth rate, right? It's kind of difficult to wrap my head around. So what is that going to look like from a risk standpoint and what new risks are going to enter the playing field? Are there going to be new funds that launch? I mean, there's always funds that are coming up in the market and kind of filling in those gaps for investors where they need somewhere to kind of put their capital.

But that's definitely something that I'm thinking about. I really curious to see with the election, what the regulation impacts are, what the impacts are on our climate policy, the tariffs, kind of how we're doing business with other economies and then what the emerging economies look like. So I'm really excited to kind of look at how sovereign risk evolves in 2025 in a couple of different areas in South America, definitely in a lot of the Asian markets.

So that's I mean I could go on and on about different areas that I'm kind of curious about. But I would say those are a couple of the big ones. Thank you, everyone, for staying with us for Masters of Risk this year. It's been so much fun. Alisha, I'm so glad that I got you out from behind the scenes to in front of the camera. It's been amazing chatting with you and creating content and having all of our amazing guests and speakers. So a huge thanks to all of them as well. And I'm really looking forward to what's on the horizon for us in 2025.

Alisha Rappaport

I am as well. And it's always such a pleasure to do this amazing podcast, Masters of Risk with you, Yashi, and thank you also to our guests over the year.