ANNANDALE, Va. — Former Virginia Lt. Gov. Justin Fairfax fatally shot his wife, Cerina Fairfax, multiple times inside their northern Virginia home early Thursday before turning the gun on himself in an apparent murder-suicide, police said.

Fairfax County Police Chief Kevin Davis identified the victims at a news briefing Thursday morning. The couple’s teenage son called 911 shortly after midnight after discovering the bodies, authorities said. Two children were home at the time of the shootings but were unharmed.

“Former Lt. Gov. Justin Fairfax shot and killed his wife inside of their home and then shot and killed himself,” Davis told reporters. Fairfax shot Cerina several times in the basement of the multimillion-dollar residence on Guinivere Drive in Annandale before moving upstairs to the primary bedroom, where he died by suicide, the chief said.

No note was immediately found, and police described the incident as a domestic matter tied to an ongoing and contentious divorce. The couple had been separated, and proceedings were described as “messy” by officials familiar with the situation. No other suspects are being sought, and the investigation remains active as detectives process the scene.

Justin Fairfax, 47, served as Virginia’s lieutenant governor from 2018 to 2022 alongside Gov. Ralph Northam. A Democrat and former federal prosecutor, he rose quickly in state politics after winning election in 2017 without prior elected experience. His tenure was overshadowed by sexual assault allegations from two women that surfaced in 2019, which he vehemently denied. The claims, made during his time as a candidate, derailed potential higher ambitions, including a run for governor, though no criminal charges were ever filed.

Cerina Fairfax, whose full name and age were not immediately released by authorities beyond her relation to the former lieutenant governor, was described by friends as a devoted mother. The couple had at least two teenage sons. Neighbors in the upscale Annandale community expressed shock at the violence in a quiet, family-oriented neighborhood just outside Washington, D.C.

Fairfax County police responded to the 911 call around 12:15 a.m. Officers found both adults dead from apparent gunshot wounds. The medical examiner will conduct autopsies to determine exact causes and manners of death, but police classified the case as murder-suicide based on preliminary evidence.

The tragedy comes as Fairfax had largely stepped away from public life following his term. After leaving office in 2022, he maintained a low profile amid the lingering effects of the 2019 allegations, which led to intense scrutiny and calls for his resignation that he resisted. Supporters at the time pointed to his denials and lack of charges, while critics highlighted the seriousness of the accusations involving incidents from his college and law school years.

Political figures across Virginia reacted with sorrow Thursday. Gov. Glenn Youngkin, a Republican, issued a statement offering condolences to the family. “This is a heartbreaking loss for Virginia,” Youngkin said. “Our thoughts are with the children and extended family during this unimaginable time.”

Former colleagues in the Democratic Party also expressed grief while acknowledging the complicated legacy. “Justin was a talented public servant whose personal struggles ultimately defined his later years,” one former Democratic lawmaker said on condition of anonymity. “Today we mourn the loss of life and pray for the surviving children.”

The couple’s home, valued in the millions, sat in a leafy suburb known for its proximity to the nation’s capital and strong schools. Neighbors reported no obvious signs of distress in recent weeks, though some noted the couple had been living apart as divorce proceedings advanced.

Domestic violence experts cautioned against speculating on motives but noted that murder-suicides often occur amid relationship breakdowns, financial stress or mental health challenges. Virginia has seen several high-profile cases in recent years, prompting renewed calls for stronger support systems for families in crisis.

Fairfax’s political career began with promise. Born in Pittsburgh and raised in Washington, D.C., he graduated from Duke University and Harvard Law School. He worked as an assistant U.S. attorney in the Eastern District of Virginia before entering politics. His 2017 victory as lieutenant governor made him one of the highest-ranking Black elected officials in the state at the time.

As lieutenant governor, Fairfax presided over the state Senate and cast tie-breaking votes on key legislation. He championed criminal justice reform and education issues. Yet the 2019 allegations — one involving an alleged assault at the 2004 Democratic National Convention and another from his time at Duke — dominated headlines. Fairfax called the claims “fabricated” and compared the scrutiny to a “lynching.” The controversy effectively ended his viability as a statewide candidate.

After leaving office, Fairfax explored private sector opportunities and occasional public commentary. Friends described him as devoted to his children despite marital difficulties. Cerina Fairfax had maintained a relatively private life focused on family.

Police have not released details about the firearm used or whether it was legally owned. Virginia law requires background checks for most gun purchases, but specifics in this case were not disclosed.

The surviving children were taken into protective custody and are being supported by family members and crisis counselors. Authorities urged anyone experiencing domestic issues to seek help through resources like the National Domestic Violence Hotline.

Thursday’s incident has drawn national attention, with major outlets covering the fall of a once-rising political star. Social media filled with reactions ranging from shock to reflections on mental health and the pressures of public life.

Mental health advocates used the moment to highlight warning signs in divorcing couples and the importance of access to counseling. “Tragedies like this remind us how critical it is to prioritize emotional well-being during life transitions,” said a spokesperson for a Virginia-based crisis intervention group.

Fairfax County, one of the wealthiest and most diverse counties in the nation, rarely sees violence of this nature in its residential areas. The police department’s major crimes unit is leading the investigation, with assistance from state police if needed.

As details emerge, the focus remains on the two children left without parents. Family friends have begun organizing support, and a GoFundMe or similar fund may be established to assist with their care.

The case also revives discussion around the 2019 allegations against Fairfax, though police emphasized that Thursday’s events appear unrelated to those past claims. No connection has been suggested by authorities.

Virginia’s political landscape has shifted since Fairfax’s time in office. Democrats regained the governorship in 2025, but the state remains competitive. The former lieutenant governor’s story serves as a cautionary tale about the personal toll that high-stakes public service and personal turmoil can exact.

Funeral arrangements for both Justin and Cerina Fairfax have not been announced. The family has requested privacy as they grieve.

In a statement, Fairfax County Police urged the community to look out for one another. “Domestic incidents can escalate quickly,” Chief Davis said. “If you or someone you know is in danger, reach out for help immediately.”

The tragedy has left many in Virginia’s political and legal circles stunned. Colleagues who worked with Fairfax remembered him as charismatic and driven, qualities that propelled his early success but could not shield him from later personal challenges.

As the investigation continues, authorities have cordoned off the home and are interviewing witnesses and reviewing any available surveillance or digital evidence. No charges will be filed given the apparent suicide of the suspect.

For now, the quiet streets of Annandale bear the weight of a sudden and violent end to a prominent family. The loss of two lives in such circumstances underscores the hidden struggles that can exist behind even the most successful facades.

For years, many British retirees approached relocation in broadly the same way.

They looked for warmth, lower day-to-day living costs, attractive scenery and a decent community of fellow Britons already in place. The logic made sense. Retirement was seen as a reward. The move itself was meant to simplify life, not require a strategic overhaul.

Today, that mindset is changing.

A growing number of UK retirees are no longer asking only where they would enjoy living. They are asking where they can retire with greater control over their pension income, tax position, estate planning and long-term peace of mind. That is a more serious question and it leads to more serious destinations.

Gibraltar is now one of them.

The Problem: Retirement Magnifies Every Weakness in a Financial Structure

Many people do not notice inefficiency while they are still in their main earning years.

Higher tax can be absorbed. Administrative burdens can be tolerated. A poorly arranged investment structure can limp on for years without forcing immediate change. Retirement is different. Once active income reduces, inefficiency becomes much more visible. In reality, this is often the stage where many UK retirees begin to revisit decisions they assumed were already settled.

Three things usually happen.

First, income becomes less flexible. Second, taxation feels heavier because each deduction bites more. Third, wealth preservation matters more because the focus begins to shift from accumulation towards longevity and transfer.

This is why retirement planning is not just about where you live. It is about how the jurisdiction you choose affects the income you draw, the assets you hold and the legacy you intend to pass on.

Why the Usual Retirement Destinations Are Being Reassessed

Spain, Portugal, Italy and Greece remain attractive, and they will continue to appeal to many UK retirees. However, more people are now looking beyond surface appeal.

The issue is not whether those countries are enjoyable places to live. Many clearly are. The issue is whether their systems give British retirees the combination of simplicity, predictability and long-term financial efficiency they are increasingly looking for.

That is where some UK retirees begin to hesitate. Tax incentives can change. Administrative systems can feel layered. Language and legal differences can create friction. Relocation planning can become more complicated than expected.

A destination may still be wonderful. It may simply not be the cleanest base from which to run retirement.

The Solution: Gibraltar Offers a More Structured Retirement Base

Gibraltar’s appeal lies in the fact that it solves several problems at once.

It gives UK retirees British legal familiarity, English-speaking ease, a secure environment and Mediterranean climate. That alone makes the move emotionally easier to contemplate. Yet the real strength is deeper than lifestyle.

Gibraltar offers a framework that can support clearer retirement planning. It is easier for many British nationals to understand. It can be easier to coordinate with existing UK legal and financial thinking. It offers a more contained environment in which fewer things feel culturally or administratively alien.

For UK retirees who want a second half of life that feels lighter, more ordered and more intentional, that is a serious advantage.

How Gibraltar Improves the Retirement Planning Equation

A strong retirement jurisdiction should support four priorities:

• efficient income planning.
• protection of capital.
• ease of administration.
• effective estate transfer.

Taxes in Gibraltar

 performs well across all four.

UK vs Gibraltar Tax: What It Means for UK Expats

Income Planning

UK retirees need clarity around how pension income, dividend income and other investment income will be taxed. Gibraltar’s framework can offer a cleaner income-planning environment than the UK, particularly for those with more than one type of income stream.

Protection of Capital

The absence of capital gains tax matters greatly over a long retirement. Portfolio changes, asset disposals and investment realignments can all be handled in a more efficient environment.

Estate Planning

The absence of inheritance tax and estate duty makes Gibraltar especially compelling for UK retirees who are thinking about family legacy and preserving wealth across generations.

Administrative Ease

Retirement should not become an endless paperwork project. Gibraltar’s British orientation and familiar legal structure reduce the burden many UK retirees fear when considering a cross-border move.

The Pension Angle Is One of Gibraltar’s Strongest Advantages

This is where Gibraltar separates itself from most retirement destinations.

For many British retirees, the pension is the central financial asset. That makes UK pension transfer rules and pension taxation critically important. Gibraltar has a rare position here. Gibraltar and Malta are the only two European jurisdictions where, in the right circumstances, a UK pension transfer may avoid the 25% Overseas Transfer Charge. Gibraltar QROPS can also create a structure where pension income is taxed at around 2.5%.

That does not mean every pension should be moved. Nor does it mean every UK retiree is suited to a UK pension transfer. Suitability, timing, scheme rules, UK tax consequences and future residence all need to be examined carefully.

However, for the right UK retiree profile, Gibraltar’s pension environment is not a minor detail. It can be one of the strongest reasons to place Gibraltar high on the shortlist.

Why 2026 Has Made Gibraltar More Relevant to UK Retirees

Timing matters in retirement planning and Gibraltar’s timing is unusually interesting.

Its relationship with Europe is becoming more functional in a post-Brexit context. That matters because later life often involves flexibility. UK retirees value the ability to move easily, see family, travel well and stay connected to multiple places without unnecessary friction.

Gibraltar’s position as a British jurisdiction with strengthening practical access to Europe makes it more relevant now than it was in the immediate Brexit aftermath. For UK retirees who want British familiarity without feeling cut off from the continent, that is a major advantage.

How a UK Retiree Should Approach the Move

A retirement move should never begin with property viewings.

It should begin with structure.

That means asking:

• when should UK residence be broken or reshaped?
• how will pension income be treated?
• what assets should be reviewed before the move?
• how will estate planning work after the move?
• what evidence of accommodation and self-sufficiency will be needed?
• how will day counts and physical presence be managed?

This is why it makes sense for a UK retiree to move from general interest into the practical detail of moving to Gibraltar. Retirement relocations succeed when the relocation planning comes first and the lifestyle follows it, not the other way round.

The Advisory Reality: Gibraltar Is Strong, but It Is Not Automatic

It is important to be honest about this.

Gibraltar is not a universal answer. It will not be right for every UK retiree. Some people will still prefer the scale of Spain, the spread of Portugal or the culture of Italy. Others may not have the net worth profile or planning needs that make Gibraltar especially compelling.

But for UK retirees who value clarity, legal familiarity, pension efficiency, estate planning strength and a more contained lifestyle environment, Gibraltar deserves much more serious attention than it often receives.

What Most UK Retirees Get Wrong – And Why Timing Now Matters

They start with the dream and leave the structure until later.

That is understandable, but expensive.

The better approach is to start with the framework: pension treatment, tax residence, estate planning, accommodation evidence, timing and execution. Once those pieces are in place, the emotional side of the move becomes much easier to enjoy.

For many UK retirees, that is where Gibraltar stands out. It allows the lifestyle decision and the relocation planning decision to support one another instead of pulling in opposite directions.

There is, however, one additional consideration that is becoming increasingly important.

Gibraltar’s residency framework is currently in transition. Several pathways have been paused since October 2025 and are expected to reopen in alignment with the UK–EU treaty. The expectation is not that access becomes easier but that it becomes more structured and more selective.

For UK retirees who are already considering Gibraltar, this introduces a different kind of planning question.

Not just whether the jurisdiction is suitable, but whether the timing of the move may influence the outcome.

Listen here or on the go via Apple Podcasts and Spotify

High Yield Investor‘s Samuel Smith shares his thoughts on energy, gold and silver (0:40) Context on yield (11:00) Context on dividend cuts (16:20) Updated thoughts on private credit and Blue Owl (18:30)

Transcript

Rena Sherbill: Samuel Smith, our friend who runs his investing group, High Yield Investor, welcome back to Investing Experts.

Samuel Smith: Thanks for having me. Always good to be with you, Rena.

Rena Sherbill: Yeah, always great to talk to you. Last time you were on, you were sharing with us your number one pick for the year, which is Blue Owl (OWL), which has done fantastically since then. So easy to see why you picked it. J.K. for all those following along. You know, that’s not true.

So primarily, I wanted to ask your thoughts, your updated thoughts on Blue Owl, but also how you’re thinking about this market a lot to contextualize for sure.

So maybe a brief reintroduction for those who don’t know you. And then if you would share with us your thoughts on this current market, that’d be awesome.

Samuel Smith: Sure. I’m Samuel Smith. I run the High Yield Investor group, as Rena just said. I’ve been an analyst on Seeking Alpha, I believe since 2017 or 2018. So I’ve been here for a good while. It’s my passion. I spend pretty much all day, just about every day doing it.

I love exchanging ideas with members of my investing group. I learned a lot from them. Hopefully they learn some things from me. And I’m just happy to be here to discuss the market today and can dig into anything specifically that you had in mind.

Rena Sherbill: Maybe just broadly speaking, how you would encourage investors to think about investing. There’s obviously with the geopolitical events happening, there’s a lot of questions about the safe haven sectors that haven’t necessarily reacted the way people have thought. A lot of questions about tech. I know that those aren’t the things that you cover, but just generally speaking, how you would encourage investors to think about the market, broadly speaking?

Samuel Smith: Sure. And actually I do cover some areas of tech and I do cover safe haven sectors like gold (XAUUSD:CUR) and precious metals because their income generating opportunities there that we take advantage of. But broadly speaking, okay, first I’ll touch on the kind of the safe havens.

I mean, obviously I guess it depends how you define safe haven at high old investor. We’ve taken kind of a two pronged approach where we have like last year we were loading up heavily on energy. fact, so take it back a few years back in 2022, 2023, I emphasized to my investing group members very strongly that I felt that gold was my highest conviction buy at the time.

And because I could see the geopolitical cloud, storm clouds forming, also we had all that inflation coming out of COVID that hadn’t carried over to gold yet. And gold tends to kind of lag those sorts of things. And so I felt that gold was really high conviction buy. We loaded into it. Obviously that thesis played out really nicely. We also played some of the miners, which further leveraged our returns.

But then silver (XAGUSD:CUR), early last year right around this time last year actually was April of 2025 I then switched and said okay silver is now my highest conviction pick because it has not rallied nearly like gold has even though there was a structural shortage involved.

It has some of the similar somewhat similar monetary and safe haven status is gold though, obviously not quite as prominent and There’s a lot of silver demand due to the electrification AI boom, etc so we poured into silver and then silver took off like a rocket.

And then late last year, I then shifted again and said, hey, I think energy is now the top buy and that whole real asset safe haven type play because of lingering tensions with the Israel Iran conflict. Obviously there was the midnight hammer raid on the nuclear facilities in Iran, but it just seemed like there was unfinished business there.

Energy prices were down. I thought energy stocks were way too cheap, including midstream especially because midstream isn’t even that sensitive in the near term cash flow wise to energy price volatility and fluctuations.

So I actually was pouring into midstream because you get these really high yields, really strong clean balance sheets, good growth potential, especially in the distribution. And then on top of that, some of them have significant exposure to both natural gas and energy exports.

And so with the AI data center boom leading to a strong demand for natural gas, and again, the threats of war in the Middle East and just the ongoing changing of global alignments here, I felt that US energy exports were going to be increasingly valuable moving forward.

So all that made me say, hey, energy, especially midstream is my top pick. And so we were actually very well positioned, even though I didn’t expect necessarily the US and Israel to do what they did in February of this year, I was not making that call at all.

I did view that as a lingering risk along with those other factors. So actually our portfolio has done really well year to day, even though gold has stumbled a bit, which is probably what you’re alluding to and the whole safe havens not performing like safe havens in the event of the Iran war, because obviously we’re already up a lot in those, but our energy stocks, which made up over a third of our portfolio coming into the year have done exceptionally well, obviously.

And gold actually in silver have done fine year to date. They started off with a bang in January and since have come back down.

But I think that gold obviously hasn’t performed quite as many as have expected for multiple reasons. I can get into that if you want. think the biggest reason is simply just that one, it was on such a strong rally to begin with that it made sense for some breather time, but also the reduced chance of Fed rate cuts this year hurt gold a lot because of the inflation fears from oil spiking that hurt gold.

I think China took a little bit of a break for a short period, although they picked up now since it pulled back. And there were some reports of Turkey also selling some gold to prop up their currency in the face of some of the issues.

Also, the gold trade, which largely goes through the Middle East, places like the Emirates, has been disrupted somewhat due to the war in Iran. And so that has probably disrupted gold markets a little bit as well.

So I think all those factors combined to cause gold to underperform somewhat.

But actually, if you look at the long-term fundamentals that have resulted from the war in Iran, namely increased US deficits, US is asking for a lot of money from Congress, the Trump administration is to fund this war, ongoing geopolitical instability, fracturing of the so-called global dollar order, increasingly fracturing along the lines of the China, Russia, Iran, North Korea, and maybe a few others block versus the US and its allies getting fractured and continued stress between the US and Europe over this war, threats to the durability of NATO and other factors there.

All of that adds up to be, I think, a net negative for the dollar over time, which is inevitably going to be a net positive for gold. So this period, actually, I’ve increased my gold holdings. There were some gold miners that oversold in response to some of these factors. I bought the dip and my backup significantly in them.

And then of course gold itself, I think it’s worth buying on any meaningful dips because I’m very bullish in it long term primarily due to my bearishness on the dollar because of some of the factors already mentioned especially the runaway spending by the US and the changing global order landscape.

So to speak all those factors. I think it was a good opportunity, a golden opportunity so to speak to take advantage of and so I trim some of my energy holdings that have gone up a lot in some of the isolated cases where I think they’ve overshot to the upside and reallocated that capital towards part of it towards towards gold and gold miners.

Some of it I’ve also put into private credit plays like Blue Owl Capital, which I’m sure we’ll talk about, to take advantage of what I think has been an overblown market reaction to what’s going on. So happy to dig in any more of that, but hopefully that addressed what you were talking about.

Rena Sherbill: With gold and silver, you mentioned specific miners, is it specific miners and ETFs, or how are you playing the gold and silver angle?

Samuel Smith: I think ETFs are fine. The thing is, it’s kind of like the opposite of how I’m taking with energy right now.

I think individual energy stocks, some of them overshoot and some of them undershoot obviously. So some that overshot to the upside, I sold. Ones that didn’t, I’ve continued to hold because I still have a lot of energy exposure. I think there’s still lot of uncertainty in the Middle East and beyond. I just think energy is a good place to be right now in general from a relatively long-term perspective.

And precious metals, I’ve done the same. I’ve been in individual stocks. I think an ETF is fine for a long-term position or if you want to trade up and down with gold price trends.

But in terms of a value investor, I try to take advantage of disconnect. So I’ve been buying individual gold miners where I felt that they oversold in response to news and changes in their fundamentals, where those are perhaps not, or maybe the other ones were so overvalued to begin with that now they’re just, you know, they just retreated back to a fair value or even still weren’t even fairly valid.

They’re still overvalued, but specific miners that I thought were undervalued or were maybe at fair value, now pulled back sharply, I think are good buying opportunities. So those are the ones I’ve been buying.

And I’ve also been investing in some bullion investment opportunities as well with direct exposure to bullion that are interesting that I detail it for my subscribers at High Yield Investor.

Rena Sherbill: Anything that you would say about the bond market or treasuries?

Samuel Smith: Yeah, I’m not a big fan of bonds.

In general, don’t think the 10-year treasury rate is high enough to compensate for, like I said, the risks to the dollar long term, risks of inflation re-accelerating.

So I just I don’t like treasuries. I do invest occasionally in bonds, usually at the low end of the investment grade or high end of the sub-investment grade area, as well as preferreds in that similar range.

And that’s just, if I feel like the yield on those is good and it’s a specific bond that I feel like, okay, these guys are very likely going to pay back. And the yield is high relative to what I see as a perceived risk.

Other than that, of course, there are a few actively managed bond and preferred ETFs that we invest in a high-end investor, right? The manager’s got a really good strategy and he’s got a proven track record about performing. So we take advantage of those as well.

Treasuries and investment grade bonds,there could be some opportunities there, but I’m not seeing really any right now. Again, this is from someone who values total returns. And if I’m going to invest in fixed income, I want a decent yield and some upside potential to go along with it. I’m just not seeing that because I think interest rates are too low, frankly.

Rena Sherbill: I want to get to the private credit sector and Blue Owl, but if we could spend a minute or two on the yield conversation as a high yield investor, we had Scott Kaufman on from the Dividend Kings and he was encouraging investors to be extra careful when it comes to things like high yielding ETFs or the whole high yielding space in a way to attract investors that might not necessarily be as high value as investors may think it is.

What yield do you target and how do you think about yield, how does it inform your strategy?

Samuel Smith: Sure. So our current, I think both of our portfolios, have a core and we have a retirement portfolio and they both currently yield between seven and 8%.

In terms of my target yield, again, I’m more conscious of that in the retirement portfolio because the primary goal there is maximizing sustainable income while trying to minimize downside risk and volatility. Whereas the core portfolio is focused primarily on maximizing total returns, but in the universe of stocks that in aggregate pay a higher yield.

And so to me, the appeal of high yielding stocks really, especially as a total returns investor, I mean, obviously as an income investor, it’s pretty obvious you get more income.

And then the trick is diversifying and trying to avoid dividend cuts. And if you can do that effectively, you’re all set. But on the total return side, I get asked this a lot, hey, you’re in your mid thirties. Why are you investing in high yield? Why not just chase these high-flying AI tech stocks?

Sure, obviously you can do well with those. People have. I, as a value investor, I like to invest in what I can understand. And it’s much easier to understand a stock that has a high yield and a low growth rate than it is a Palantir (PLTR) that has valuation multiple in the stratosphere and therefore has to grow by an incredible amount to justify that valuation.

Or you have to just hope that you can get lucky, you know, with the greater fool theory and play the sentiment game and hope that someone else will buy it for more than you, even though the fundamentals don’t justify it. So as someone who tries to invest in a logical, rational way, I try to think like a business owner, I’m a Warren Buffett devotee so to speak.

High-yield stocks are generally easy to understand because they generally, again, they pay out high contracted cash flows, at least the sectors I focus on like midstream and other types of infrastructure, whether it utilities or other diversified infrastructure plays, REITs, real estate with long duration leases, contracted cash flows, BDCs, which again, they invest in loans, so they get obviously very contracted cash flows, preferreds, baby bonds, and several other sectors as well, alternative asset managers, and there are others.

And so these sectors all generally pay out very stable cash flows. So it’s pretty easy to build a valuation model. And then when they’re returning the lion’s share of it to shareholders with, I’ll invest occasionally in a 3 to 4 % yielder, but it needs to have very, I need to have very high conviction in both its quality as well as its growth. But generally I like 5 % or higher yields.

And my sweet spot I found is generally five to eight percent, occasionally higher, occasionally lower. But generally most of my investments are five to eight percent because those are often sustainable, especially in the business models I’m talking about.

I look for investment grade balance sheets or at least balance sheets that should be investment grade and, you know, no near term debt maturity cliffs, good control of their interest rate exposure and plenty of cash flow to cover the dividend and also a highly predictable growth profile.

And so then it’s much easier to value those companies. You’re not setting yourself up for this high variance of what is the actual intrinsic value. If a company pays a 7 % yield and is growing between 3 and 5 % a year, you can feel pretty good about, I can build a pretty low variance of what the actual value of this is.

And so then you just let you wait. You identify these companies. You watch them. And you wait for the market to sell them down to a point where you feel pretty good that the valuation multiple compression risk over the long term is quite low unless interest rates just skyrocket. And then you buy them and then you wait for the market to cheer up about them or for interest rates to just fall.

Then they go up when they reach your fair value estimate and you have another replacement while still keeping portfolio diversification and sector and individual stock diversification in mind. You trim or sell, recycle the capital into that other opportunity and you rinse and repeat.

The yield plus growth profile when you’re buying them probably gets you about a 12 % total return in general, but maybe 13, maybe 11, just depending on the individual situation, maybe even 15.

But with the capital recycling, you can turn that low teens annualized rate of return into a high teens or even low 20s. And that’s what we’ve been able to do at High Yield Investor for the five and a half years that we’ve run it. Our annualized rate of return is right around 20 % at a time when the high yield space where we fish has actually returned like 9 something percent.

I think the S&P’s (SP500) return is like 13%. So this strategy works. And it’s something that I understand. I can sleep well at night doing it, even when one of my picks like Owl is going haywire. In aggregate, we’re still up very significantly this year. We’ve significantly outperformed the S&P. So that’s how it’s our approach. That’s how I think about it.

And again, the trick is doing your homework upfront and not reaching for yield. They’re just saying, I’m bored. I’m going to chase this juicy looking yield that’s being very selective only selecting companies that meet your criteria and then being very disciplined about the capital allocation, capital recycling process, not falling in love with a certain stock, but at the same time not panic selling just because it’s going down either.

Rena Sherbill: Doing your homework first, always a fantastic idea. The same question about dividend cuts. How does that inform your strategy or how does your strategy inform how you think about dividend cuts?

Samuel Smith: It depends on the security.

So for example, there’s a lot of people panicking about, BDCs are going to have to cut their dividends because the Fed has been cutting rates, spreads did narrow. Now they’re starting to widen again.

But a lot of some really good BDCs have actually cut their dividends recently and others are barely hanging on. And so there’s all this fear. And you just have to realize when you’re investing in a BDC, you’re effectively investing in a floating rate fund because they invest in loans that are floating rate.

And that’s why they’re being cut. So if that’s why they’re being cut, there’s nothing to worry about if they’re being cut because you know underwriting issues, which some of them have then obviously that’s another matter.

But then other companies like say Realty Income (O) for example, it’s a bond proxy triple net lease rate that has some growth. And they call themselves the monthly dividend company. If they were to cut their dividend, I’m sure that stock would get crushed and rightly so because its primary investor base is people, individuals, institutions who want a very sustainable dividend that’s mid single digits that’s going to grow at a rate roughly that keeps up or maybe slightly exceeds inflation over time. And that’s the investment thesis.

And so if the dividend gets cut, obviously that’s not gonna go over well with a large number of investors who understand that this is supposed to be a sustainable dividend yield.

And so obviously that’s something to avoid. So it really depends on the company. And again, it also depends on the reason for the dividend cut. Again, it just depends on the company. And of course then there are cyclical companies like LyondellBasell (LYB), one that we had invested in.

In the past, they’re very cyclical. They were tumbling with the industry and then with the war in Iran, the sector has rebounded incredibly sharply and it’s skyrocketed higher, even though it just cut its dividend shortly before it skyrocketed higher. But that’s due to cyclical factors.

It’s not due to the company itself making a bad decision or being permanently impaired. so, again, it just depends on the company how you think about a dividend cut. I’m not someone who says all dividend cuts are bad. I’d say most of them are bad, but it really depends on the company and also the reasoning behind the dividend cut that really matters.

Rena Sherbill: Okay, so for Blue Owl and the private credit sector, we’ve heard this talk of the Blue Owl and the coal mine, that that’s the new canary in the coal mine.

George Noble was on this podcast talking about how the whole sector is an unmitigated disaster. What is your answer to people when you’re talking about that sector and Blue Owl specifically?

Samuel Smith: Yeah, I mean, where to start?

I think that it’s a classic case of a self-perpetuating story. It all started last year. And actually, I actually was bearish on BDCs. I wrote some public commentary. I sold several of our BDC holdings at High Yield Investor last summer because I thought the valuations, it was not a sector I was necessarily bullish on to begin with, it was a case where, a lot of the BDCs are trading near NAV.

I didn’t really see the externally managed ones and obviously the publicly, the internally managed ones were at a large premium to NAV. And so I just didn’t see any compelling value there.

It’s not a sector that I want to pay price to NAV for on an externally managed basis or a massive premium for internally managed businesses. I want a large discount to NAV.

But at the same time, I was warning people about it, et cetera. Jamie Dimon was talking about, made the famous cockroach comment because of a, I think, tricolor bankruptcy and some others, which by the way, later were found out to not even be due to private credit.

They were actually bank underwritten loans and there were fraud involved and everything.

So it was a completely false, false accusation or false stain on private credit. But regardless, that started the concern. They started to trade down, I think also, Trump’s rhetoric about wanting to replace Powell, wanting to cut rates more aggressively, all these things, and also just the consensus outcome, OK, all these tariffs came on, but inflation really isn’t spiking higher like many feared.

And so that was one less roadblock and the way more Fed cuts. So all that was saying, OK, I think the BDC’s income is going to come lower because they’re floating rate instruments effectively. And so the sector was going down. Fair enough. That was not news to me. That was what I expected. I was glad I mostly sold out. Great.

But Blue Owl, it’s not a BDC and it’s external, it’s an asset manager and it manages several BDCs of course, but only about a third of its overall AUM is direct lending. It also has some other credit investments that are not indirect lending. has a triple net lease REIT business that has done very well.

They acquired Store Capital, which was a great REIT a number of years ago and they have other real estate assets in there as well. They have an AI infrastructure business that’sliterally award winning and doing very well. And then they also have a GP Stakes business, which is also doing very well.

So it’s more than just direct lending. And again, their public BDCs, OBDC, OTF are doing just fine on a fundamental basis. Low non-accruals, low watch list. They’ve got great track records. Their private BDCs are arguably doing even better. So really no concerns there. It was growing rapidly. And so the thesis was good.

And since then, things have, especially this year, things have reached a fever pitch. Again, it’s hard to know why it’s gotten this way unless there’s some nefarious reasoning behind it. I can conjecture on that all day. I’m not in the business of doing that. So unless you want me to, I won’t go into it.

But bottom line is the private credit space has been stealing a lot of market share from traditional banks, for example. And so there’s a reason why some of those forces, aka Jamie Dimon and others, may want to try to emphasize the perceived flaws of the industry.

And then, of course, this big narrative emerged that this is great financial crisis 2.0, which completely ignores the fact that these BDCs are leveraged around one times. So they have the same amount of debt as they do equity.

And in some cases, like for example, Blue Owl’s two big private BDCs actually have less than one times leverage, whereas the banks during the great financial crisis were leverage at like 30 to 40 times. So completely different. Their balance sheets were subject to margin calls.

In some cases, banks are subject to bank runs. That does not apply here. Blue Owl has like 75 % of its fees come from permanent capital. And even the rest of it is like long dated capital. And they had their, know, from the beginning, and then of course all this stuff about gates on funds. Well, that was from the beginning.

Their funds have always been structured that way to provide up to 5 % liquidity each quarter. And it’s a long duration investment. That’s what private markets are. again, this is all just, I feel like fear mongering. It sounds like I’m being dismissive of the bear thesis, but I’ve done a lot of research.

I just recently published an article to my subscribers, a high-level investor on the private credit space with the actual facts of what’s going on.

And it really is, it’s this thing where it’s like the media stirs up fears from Jamie Dimon’s comment and all this other stuff about private credit is opaque and it’s going to be the next great financial crisis.

All this kind of fear mongering and Blue Owl sells some loans, like 1.4 billions worth of loans around par value to third parties. One of the four parties they sold it to had some affiliation with them, but the other three didn’t. And so then the media spun this narrative that, they’re just playing games.

This must mean they’re in distress that they’re having to sell and they only sold the good assets. All the rest are junk. And all those were rebutted by Blue Owl Capital. Quite clearly, I spoke to them at length about it as well, pressed them with some tough questions, shared all that with my members. bottom line is, it’s a fear mongering tactic from the media that then, of course, I got emails from people who saw my articles on Blue Owl in the public site.

And these are people who have their retail investors, retirees, et cetera, in some of Blue Owl’s private funds. And they emailed me and said, hey, I’m worried that, I read that Blue Owl is about to implode. I’m worried that I’m going to lose all my money. How do I get it all out? What do you think I should do? I’m like, well, I’m not your financial advisor. But this is my understanding of the situation.

But this fear mongering from, frankly, abusive people. And they’re pulling out their money, of course. It’s a bank run type attempt. Fortunately for Blue Owl, and this again was part of my bull thesis, is even in a worst case scenario like that where fears get drummed up, they can only gate up to 5 % per quarter.

And Blue Owl is still raising money. They still have some institutional investors who are very committed to them and realize that the underlying fundamentals are still very strong in their portfolio.

If you look at the shareholder letters for both their private BDCs that had these large withdrawal requests this past quarter, their fundamentals are phenomenal and their AUM basically didn’t change. It only went down very slightly because of the Gates and they’re still raising funds.

I think it’s just a big misrepresentation of what’s going on and it’s, know, fear-mongering. And so it has reduced sentiment. has reduced fundraising and caused, you know, redemptions to go up across the industry.

But again, the underlying fundamentals remain strong across all the major asset managers, whether it’s Blackstone (BX), Apollo (APO), Ares (ARES), (KKR), Blue Owl, et cetera.

But all those names are still good. And some would say, well, they’re just overstating things. They’re hiding things. This is what they did in the great financial crisis. Well, there are a couple, I think, rebuttals to that. First of all, this is not a new industry. This has been around since the great financial crisis.

Blue Owl, for example, has been doing this for over 10 years. They have a very strong track record with very low loss rates. Loss rates is not something you can fake. You can fake your marks. You can play games with your watch lists and all that stuff in the short term. But eventually, those loans get repaid or they go bankrupt. so their loss rate over a decade, especially through a stress period like COVID, you can’t fake that.

It also ignores the fact that Blue Owl, and particularly many of these others do as well, they actually have third parties come in and mark their books quarter to quarter, every quarter. And they take the recommendations of those third parties and that’s what they sign the marks to. So they’re not just made up. Yes, the board could if they wanted to, but they don’t. And again, their track record supports that.

Then third, obviously in the case of Blue Owl, insiders own like 27 % of the stock. Insiders get 100 % of their compensation in the stock. And on top of that, they bought a lot of it at the end of last year. Other companies like Blackstone, KKR, etc. are doing the same thing.

So clearly, they’re well aligned with shareholders. They’re believers in the story. They’re not heading for the gates. then on top of that, even if, let’s say, Blue Owl and Apollo and Ares, ones that are really heavily allocated to private credit, let’s say they’re making it up because they just, we got to be solvent. We got to support our business.

Well, Blackstone has a huge real estate business, a huge infrastructure business, a huge private equity business, a bunch of other businesses outside of private credit.

If things were really so bad, it would behoove them to say, yes, things are bad. Yeah, it hurt them in the short term, but it would at least save their reputation for all their other businesses. So it would make sense for them. All their rivals could sink and they would be the last one standing that at least had a good reputation, but they’re not doing that. No, our book is doing very well. They just released a paper, Myth First Reality on the private credit sector.

Their senior management has actually used their own money to honor redemption requests in some of their funds that are above the 5% gate. So, they’re tripling down probably more than anyone on private credit and they have the least existential reasoning to do so.

So again, I think it’s pretty obvious that the insiders genuinely believe that their books are just fine, that they are not seeing issues at play because otherwise they’re all being completely stupid together and going to completely destroy themselves.

And again, in Blackstone’s case, there’s really no good reason for them to do it. And even again, Blue Owl, only a third of their business is in direct lending. They still have two thirds outside of it, much of which is growing at a strong clip.

Meanwhile, the gating effect is that even their direct lending AUM is staying relatively stable. I we’ll see the numbers here. They report at end of the month.

I think there’s a very strong chance that OWL will report fairly stable AUM for Q1, probably the same for Q2. And I expect in the second half of this year, because they have some big funds going to market and their real estate and digital infrastructure spaces that should raise a lot of money, I expect they’re going to grow AUM at a pretty decent clip in the second half of this year.

And certainly for the full year, I think they’re going to have grown AUM. And I think that’s going to blow up the shorts pretty clearly, because it’s going to show that, you

They’re not going anywhere. And I think the same will be for the other asset managers as well. So again, I think it’s just a case of fear mongering from the media leading to the self-perpetuating cycle where no one wants to be out of step with what everyone’s saying.

The stock prices are going down due to headline driven algorithmic effects. course, the war in Iran doesn’t help. It’s hurt the whole market.

And then of course, there’s also the whole software side of things that I can get into as well. But I’ll stop there and let you chime in.

Rena Sherbill: I would love to hear about the software side of things. I was just going to ask, I assume this has been surprising, the negative trajectory. Has it been surprising for you?

Samuel Smith: I mean, I guess I think so. Again, as a Warren Buffett devotee, I’ve indoctrinated myself. I’ve conditioned my mind to where I have zero expectations for the performance of the stock price over at least a couple of years.

The way I approach it is again, I invest with the expectation that I’m going to hold that stock for at least three to five years. And then I sit back, I focus like crazy on the fundamentals.

And I keep an eye on the stock price, but I don’t let that inform my view of the fundamentals. Rather, I say, okay, does Mr. Market get too moody in one way or the direction of the other? And I let volatility serve me instead of the other way around.

So frankly, I had zero expectations. I didn’t care. I wasn’t looking to sell Blue Owl immediately. I wasn’t looking for, I’m not a one month, this is, and I think I even said in our last podcast, I think both the other gentlemen and myself, both prefaced our picks with, look, we’re not one pick guys, we’re diversified folks.

And again, our diversification served us very well this year, but also I’m not someone to say, this stock is going to be the winner this year. There’s more of a statement as a long-term value oriented investor. I thought the Blue Owl Capital at the time offered one of the best risk reward profiles out there. And I still stand by that statement.

Now, the path from point A to point B, when I ultimately sell it, who knows what’s going to happen along that path.

Actually, most of my big winners at High Yield Investor, I wouldn’t say necessarily most, but a lot of them, maybe most of them, I haven’t run the stats, but I know quite a few of them have gone down a lot before they went up a lot. And that’s just the nature of it.

And that’s why I diversify intelligently so that even when some are going down, others are going up. And in the aggregate, we’ve actually had significantly below market beta in our portfolio across our track record. And that’s proven true this year as well. So again, to your question, it didn’t really surprise me.

I don’t have any expectations. Now, I would be lying if I said it didn’t stress me because if it was just me myself, I wouldn’t really care. I bought more. Great. I could buy more at a cheaper price. I never thought I’d be able to buy Blue Owl at a 10 % plus yield, which I did, which in my opinion is great.

But the stress comes from obviously dealing with members who are panicking. But that’s my job is to help guide them through periods of market chaos. And of course, the troves of trolls that come into the public articles and harass me. And it is what it is.

I know that’s part of the game. It just makes victory feel all the sweeter when it happens. And of course, if it doesn’t, investing is a humbling business and you learn more from your mistakes than your wins. And again, that’s why you diversify. That’s why you need to be humble. That’s why you do learn.

It doesn’t really matter to me too much what happens other than that I got to buy more. Great. Of course, I love it when a stock goes up really fast too, because then can sell it and recycle it quickly and compound my capital even faster. No, I don’t view it as a good or a bad pick based on how the stock performs over a three-month period or even six-month or even a year.

Of course, at a year, if you’re down 50 % after a whole year, there’s a good chance that means that something fundamentally has deteriorated. And it has to a degree just in the sense that, and I have reduced my estimate of fair value although it’s still well above where it was when I was buying when I put the buy rating out in January.

So I still feel good about that call. But, just because the fundraising has slowed down in the direct lending business, which is about a third of their AUM, their private credit as a whole is about 50%, but just the direct lending, which is really the sector in question, the rest of it’s actually doing quite well in fundraising.

They just had an oversubscribed credit fund outside of the direct lending space, but direct lending is only about a third. And there, yes, they have had the elevated redemptions. Yes, they have had slowed fundraising. So yes, that has impaired the growth outlook for the company, which in turn reduces my intrinsic value estimate.

Not enough to make me have any different opinion about it. Then I still would have written the same article in January if I didn’t have any information about the stock price and just said, hey, their fundraising is going to be a little bit weaker out the chute here the first quarter or two. Then, yeah, I would have still written the same article.

Rena Sherbill: I still want you to get into the software factor, but also when do you decide to sell? When will you decide to sell Blue Owl or how do you think about selling in general?

Samuel Smith: Yeah, I’ll touch on the second one first because that kind of feeds off what I was just saying.

So selling in general, one of two reasons for selling one is valuation. So if it’s no longer a compelling buy, it may still be slightly undervalued. Maybe it’s slightly overvalued. Maybe it’s fairly valued depending on the stock and the situation.

But I no longer view it as a high conviction pick. And I also have another place to reallocate it to that I feel much more attracted to from evaluation and otherwise standpoint. And it still honors my diversification principles across my business.

And along with that, sometimes if I have a position, like for example, Blue Owl would be a good example this. I’ve doubled down on it, tripled down on it as it’s dropped and brought down my cost basis a lot in the process, which is great. if it were to recover even back to where it was in January, say $14 a share or whatever it was back then.

That’s 40 % upside from here. My position would be way too large at that point for diversification. So even though I think it has significant further upside, I would likely trim my position some at that point just to keep my diversification in line.

And of course, lock in big gains on what I’ve been buying. I bought a bunch here in the $8 and $9 range in recent weeks. that would be one time. Those would be the two times I’d sell from a valuation or diversification standpoint. And the other reason I would sell is if the investment thesis gets truly broken.

So in the case of Blue Owl, if I saw legitimate concerning signs that, yeah, the fear mongering about private credit is going to go bust and it’s a big fraud and they are not reporting their loans correctly, et cetera.

So if I start seeing non-accruals rising above historical norms and, you know, pick getting up there and some other issues, then yes, I would say, okay, I’m losing confidence here.

I’m going to sell or perhaps even if just their fundraising just completely dried up across the platform if there was evidence that the Blue Owl brand has been permanently impaired at large and not just their direct lending business because of a bunch of negative media hit pieces but truly institutional investors are backing away across the board across all their businesses then that would certainly significantly change how I would assess intrinsic value there and then again depending on where the stock was I would probably at least reduce my position size.

Really it goes either my investment thesis breaks or the valuation becomes too high slash the position size becomes too high.

So for the software side of things, this is an interesting thing. I have a master’s degree in machine learning and computational engineering, so I do have a good bit of exposure to programming and how AI works, et cetera. And I’m not, I won’t call myself some big expert on it, but I do have some familiarity with it.

I think Blue Owl has done a good job, Blackstone has done a good job, Ares and others, of explaining how they invest in these loans. And Blue Owl, for example, they have a large team of just software people. That’s all they do. They focus on the software industry. They look at trends. They’ve been doing this for years. They have actually a net gain, loss rate.

In other words, they haven’t lost. They’ve actually gained money on all their investments in software over the years in terms of like during recoveries. Obviously they’ve made money off of interest, but just in terms of the principle, they’ve actually gained rather than lost just on a principle basis, which is incredible, virtually unheard of, especially in private credit direct lending type area where we’re talking about well below investment grade caliber lending.

And so, they’re clearly good at what they do. And, you know, in Blue Owl’s case, people overlook the fact they have a large stake in SpaceX (SPACE) and their tech portfolios, their software heavy portfolios that they bought a while ago and is way up for them.

And they’ve actually undermarked it in their books relative by a pretty large margin relative to where their recent fundraising rounds have been. That is SpaceX’s fundraising rounds.

And of course the IPO is expected to be at an even higher level. And of course SpaceX and XAI are the same company, so now it’s also an AI company. So, Blue Owl is being penalized if you look at their publicly traded software fund, (OTF), Blue Owl Technology Finance.

They’re trading at like a 30-something percent discount to their NAV. Which, by the way, their NAV is understated at least as far as the SpaceX state goes because, like I said, it’s actually probably going to be worth a lot more.

It’s probably worth a lot more than this being reported. And that’s an AI company now. I’m not just because of XAI, but because they’re trying, their goal is to build data centers in space. And so, I think it’s kind of a bit goofy that they’re being penalized for that.

Not to mention the fact that Blue Owl, the asset manager, which is again, the stock in question here, OWL, they have a large and very rapidly growing business in AI infrastructure investments.

They’ve gotten no credit for that either. In fact, their AUM exposure to that is just about what their AUM exposure is to software loans. So, you know, if you think AI is going to be this dominant force that’s going to completely obliterate the software industry, well, then you’d probably think their AI infrastructure business is going to do pretty well.

But, the market hasn’t given them any credit for that. So, you know, that’s that’s another big inconsistency. But even just looking at the software loans themselves, software is not a monolith. It’s not just software. Software is really not even an industry that that software serves.

Now, obviously, like Palantir, for example, is a very diversified software company. It serves a lot of different industries and companies. So that’s a little bit different. But a lot of the companies that that Blue Owl and other private credit lenders invest in with their loans, they’re companies that are mission critical. They do an exact task that’s very important for a company. So they’re deeply embedded in their operations and their systems.

They generally have fine-tuned that to an industry like finance or healthcare that’s regulated that, know, AI itself, people don’t realize it’s not just some magic voodoo. It’s effectively applied statistics. And so it’s simply just predicting what the most likely answer is to a solution.

But that’s why it sometimes hallucinates. And so when you’re dealing with regulated industries like healthcare or finance, hallucinated answers are not good enough. And that’s one of the reasons, for example, I know Seeking Alpha has a no AI use and research policy and that’s because you don’t want analysts putting out articles that have factually incorrect statements in them that were a product of AI hallucinations. So that’s a no-go. Even if it’s only a 0.1 % chance of it happening, it’s still a no-go in a situation like that. again, yeah, vibe coding is a thing and sure you can use that as it reduces a lot of the costs. You don’t have to hire as big of a team, all this kind of stuff. It speeds the process up.

And I do expect competition to increase for some of these companies. And you know what? If I had to guess, I think they will see an uptick in defaults and non-accruals from their software loans.

Again, I’m not bullish on software loans in a vacuum. But when you’re a BDC and you’re trading at a 35 % discount to NAV, and you have senior secured first lien loans at a 35 % weighted average loan to value, the software companies you’re investing in are currently growing EBITDA at like a 10 % annualized rate.

You have practically no non-accruals, practically no real watch list. You have a net gain loss rate over the long term. A lot is gonna have to go wrong. And again, it’s under levered. think OTF is like 0.6 something percent leverage ratio, weighted average leverage ratio, it’s most recent quarter. The private tech fund is also very under levered.

A lot has to go wrong there for it to really hurt people. And again, with a software loan at the 30 something percent loan to value, the company has to be impaired by like 70 percent before the lender loses a penny. And people go, well, software has nothing backing it. So if it goes bankrupt, you’re losing everything.

People forget that these are software companies with, again, deeply embedded in their counter and their customers working system.

So high switching costs, so barriers to entry, switching costs, et cetera, regulated businesses. And even if they say, hey, this company is no longer able to meet its interest payments, its debt obligations because it’s lost a lot of customers because AI has disrupted it, there’s still going to be recurring revenues that have to run off. And the lender then seizes, Blue Owl, for example, would seize those recurring revenues and get a pretty significant recovery, even if that happens.

Again, I just think the gloom and doom is way overstated. And again, AI is not guaranteed to be a headwind. It just means that, yeah, more competition may be able to come in, barriers to entry may be reduced. But remember, these are the incumbents. They can use AI too to reduce their costs to improve the capabilities of their software. And they’re not standing still.

Blue Owl is very well aware of this. They’re working with their counterparties to help them. And again, they’re under leveraged, so they’re able to make a lot of new investments with all this knowledge already in front of them. So they can, you could say dilute their AI exposure even further if they are sensitivity, I should say, even further if they want.

And I imagine they’re doing that. All this to say, and of course also just the distress in the software space means that their spreads are gonna be even wider on new investments. So they’re gonna make even more profits.

The margin of safety is gonna be even larger. And so again, I think it is a headwind, but I think the fear is way overblown.

And remember, software is only 8% of Al’s AUM, and even if you want to argue that they’re under-representing that, even if it’s say 12%, it’s still very small compared to their overall book.

Rena Sherbill: When you said earlier that you’re in touch with Blue Owl, you’re in touch with management?

Samuel Smith: Yeah, various members of their team at various times. Yes.

Rena Sherbill: Well, first of all, I really appreciate this conversation. You know, if you go to the Blue Owl (OWL) quote page on Seeking Alpha, you’ll see Seeking Alpha analysts have it as a hold, Wall Street analysts have it as a buy, and our quant system has it as a sell.

Samuel Smith: Yeah, well and again, the quant system is a totally different framework from how I look at things.

In fact, the vast majority of my picks are rated as sells in the quant system. that’s probably one of the biggest questions I get from members is, why do you say these are buys and the quant system says they are a big risk?

And that’s because quant is momentum focused primarily. They also look at GAAP earnings, which are not good ways to assess most of the stocks I look at. And they are short term, they chase momentum, they’re short-term focused. That’s fine.

The quant and I can both be right. Quant is right. Obviously, it’s gone down a lot. So short-term momentum chasers who listen to quant have done very well. But someone who’s investing for three to five years, we’ll see. But I think they’ll probably end up doing pretty well too. And again, our track record speaks for itself. We have about a 20 % annualized rate of return and we’ve pretty much gone against the quant system on all of our calls.

There’s more than one way to skin the cat and I’m not here to say the quant system is bad, but at the same time, I think we both could be right on certain stocks. It just depends on your time frame and how you’re looking at things.

Rena Sherbill: Different strokes for different folks in different situations. I know that we’re at the end of our time, but would you give a minute why GAAP is not a good factor for you to use, or a good metric for you to use?

Samuel Smith: I think it is for many companies, but just for different companies, that’s not the way to look at it.

So for example, like REITs, right? They have a lot of real estate depreciation that gets put in there and that’s just an accounting gimmick. The underlying real estate may actually be increasing in value, but because of depreciation rules, their gap earnings are generally way lower than what their actual earnings power is. They use metrics like FFO or AFO, funds from operation, adjusted funds from operation.

Midstream does something similar with distributable cash flow or free cash flow. Blue Owl uses distributable earnings. And especially in Blue Owl’s case, if you look at their GAAP earnings, they’re like super low, their PE is super high. So we were like, why do you like this stock?

Well, it’s because it’s a gimmick. They’ve done a lot of acquisitions recently. And Blue Owl, they used stock, they issued stock in those cases. Of course, the stock was much higher back then, so it was a much more prudent use of their stock then, but that’s why they’re not doing any acquisitions now, at least one reason.

They issued stock to buy the companies and the whole point of that is they want to have an asset like business model so they distribute almost all their earnings to shareholders as dividends, which is great.

But also they do that so that the company that they acquire, the management team just comes and joins them because they obviously want that management team. The asset management business is all about relationships and trust. So they want to keep that existing team. That’s kind of the whole point. And so then they pay them in Owl stock, which aligns their interest with owl as a whole and there’s like a long lockup period on it.

And so it keeps them from just jumping ship and selling their shares. And so they amortize the way their accounting works is they amortize that stock issuance that they used to purchase that company over time. And so that counts as an operating cost cause it’s like stock based compensation is how it comes across.

And so that greatly reduces their GAAP earnings over the short term as they amortize that acquisition even though it’s not really an operating cost, it’s simply the cost of the acquisition. And so it’s just a quirk that temporarily suppresses GAAP earnings.

Rena Sherbill: Really appreciate this conversation, Samuel. Thanks for coming back on. Thanks for sharing so much with us. I know that our audience has been asking for an update. I know that they are appreciative of this as am I. If you would care to have a last word or final thoughts for investors, or if you just want to share where they can get in touch with you, again, the investing group is High Yield Investor. And thank you again.

Samuel Smith: Yeah, thanks, Rena. I would just say to investors, first of all, none of us are omniscient. I could very well be wrong about Blue Owl. Obviously, the market thinks I am. And so I could be wrong.

And that’s where diversification is so important. But second of all, also echo what Warren Buffett has said many times. And that is, if you’re going to count out a stock or judge a stock, and certainly if you’re going to sell a stock simply because it’s gone down in price without actually looking at the fundamentals, you have no business investing in stocks.

You know, go play the lottery, go bet on horse racing, you know, the betting markets are growing. Maybe that’s a better place for you. Because again, true investing is looking at a business or an asset, determining what its value, intrinsic value is, and paying less than that.

And then letting time and the power of compounding do its work. That’s really what investing is. It’s not some game where you read a chart and you make a guess about what’s going to happen. That’s gambling, that’s speculating. And again, you can make money doing that as we’re talking about. The SA Quant has apparently done well, that’s great. But that’s not investing, that’s speculating.

And so just separate the two. But if you’re going to invest in the stock market, you need to divorce yourself from being swung by stock price movements and instead focus on the fundamentals. And I think Blue Owl and really the private credit space as a whole is exhibit A for that. Again, we’ll see what happens. I could be wrong, but those principles are not wrong. I know those principles are right.

It’s just a matter of am I applying them correctly here. And so we’ll see. If you have questions about Blue Owl, you can comment on my public articles. I may or may not go back and look at those. If you send me a direct message, I’ll definitely look at that.

And certainly if you join High Yield Investor, I always prioritize those people. And that’s the people who I give regular updates to. I’ll have an update on there for members right after they report earnings here in a few weeks. And I’m always posting stuff every day in the chat, responding to any question that comes to me within minutes, if not hours. And that’s where you’ll get my latest and so-called greatest thoughts.

Britain’s EdTech sector and artificial intelligence laboratories are being invited to pitch for a share of government funding to design a new generation of classroom-ready AI tutoring tools, in an initiative aimed squarely at closing the attainment gap between the country’s wealthiest and poorest pupils.

Up to eight companies will be selected to form a Pioneer Group, each receiving £300,000 to build and trial tools that could eventually reach as many as 450,000 disadvantaged pupils a year. The first cohort is expected to begin classroom testing under teacher supervision this summer, with a view to a national rollout from 2027.

The programme, unveiled this week, forms part of the delivery plan behind the government’s landmark schools white paper, Every Child Achieving and Thriving, published earlier this year. That document sets an ambitious target of halving the outcomes gap between children from poorer households and their better-off peers.

For the UK’s fast-growing education technology sector, the tender represents one of the most significant public procurement opportunities in recent years. Ministers have made clear that bidders will be expected to demonstrate, in concrete terms, how their products will serve pupils from low-income backgrounds, as well as those with special educational needs and disabilities. Accessibility and inclusivity are non-negotiable criteria.

The tools themselves will initially target Years 9 and 10 in four core subjects: English, mathematics, science and modern foreign languages. Each is expected to adapt to the individual learner, stepping in when a pupil falters and identifying areas where additional practice is required to secure mastery of the curriculum.

Crucially for the teaching profession, the government has stressed that the tools must be co-designed with classroom practitioners rather than dropped on them. The stated ambition is to provide an additional layer of support that frees up teacher time for the pupils who most need it, rather than to replace the teacher in front of the class.

The business case is straightforward. Private one-to-one tutoring, which research suggests can accelerate a pupil’s learning by as much as five months, typically costs hundreds or even thousands of pounds a year, placing it well beyond the reach of most working families.

Minister for Digital Government Ian Murray said the initiative was about democratising a form of support that had historically been the preserve of the wealthy. “The best educational support outside school has too often been the privilege of those who can afford it,” he said. “AI gives us a genuine opportunity to change that, to put the kind of personalised, one-to-one tutoring into the hands of all pupils, regardless of their background, and giving teachers the best technology to complement their work. That is why I’m calling on EdTech companies and AI labs to help us design safe and evidence-based tutoring tools that will deliver real educational improvements.”

Education Minister Olivia Bailey struck a similar note, while pointedly emphasising that the pace of the rollout would not be allowed to compromise safety. “Personalised, high-quality tutoring tools have the potential to help us make enormous progress in levelling the playing field for thousands more children from disadvantaged backgrounds,” she said. “But getting this right matters just as much as moving quickly. Every tool must be built with teachers, tested rigorously, and held to the highest safety standards before it reaches the country’s classrooms. That is why we are inviting leading EdTech and AI to rise to this challenge with us, not just to build something innovative, but to build something that will give pupils more opportunity, and perhaps even transform their life chances altogether.”

The reaction from the academy sector has been broadly supportive. Nav Sanghara, chief executive of Woodland Academy Trust, welcomed what he described as “a more thoughtful and evidence-informed approach to AI in education” and argued that co-designing tools with teachers was essential if they were to be safe, curriculum-aligned and genuinely effective. “At Woodland Academy Trust, we are clear that technology, including AI tools, must enhance rather than replace high-quality teaching, and should be grounded in strong pedagogy,” he said, adding that the programme’s focus on disadvantaged pupils, including those with SEND, was “particularly important”.

Safety considerations will run through the programme from start to finish. Every tool entering the pilot must meet rigorous UK safety standards and align with the national curriculum. At the end of the trial phase, suppliers will be required to report back on measurable impact, both for pupils and for their teachers.

In parallel, new national benchmarks are being developed to verify that AI tools are accurate, age-appropriate and safe, a framework that officials hope will future-proof the sector by allowing newly released models to be assessed rapidly as they come to market. Teachers are being drawn into the benchmark design process to help create realistic classroom scenarios and clear scoring criteria.

The government is also opening up its AI Content Store, a repository of publicly available educational resources, to participating developers. The aim is to give bidders a rich seam of high-quality material with which to test, evaluate and refine their products.

The tutoring programme sits alongside a broader package of EdTech investment, including an additional £325m committed to school connectivity through to 2029/30, designed to narrow the digital divide, and up to £23m earmarked for testing AI and EdTech products in schools with the twin aims of improving outcomes and reducing teacher workload.

For EdTech founders and AI labs with an appetite for the UK education market, the message from Whitehall is unambiguous: the door is open, the funding is on the table, and the commercial prize, a potential national rollout reaching hundreds of thousands of pupils, is substantial. The price of admission, however, is a demonstrable commitment to safety, equity and genuine classroom utility.

Jamie Young

Jamie is Senior Reporter at Business Matters, bringing over a decade of experience in UK SME business reporting.
Jamie holds a degree in Business Administration and regularly participates in industry conferences and workshops.

When not reporting on the latest business developments, Jamie is passionate about mentoring up-and-coming journalists and entrepreneurs to inspire the next generation of business leaders.

Asia Pacific’s AI ambitions are colliding with the past. Outdated infrastructure is quietly sabotaging the region’s artificial intelligence race, and a widening revenue gap is exposing who is falling behind.

Key takeaways

• Legacy infrastructure is the single biggest barrier to AI adoption across Asia Pacific, with nearly half of organisations unable to build new applications without major modernisation first.
• The revenue gap between digital leaders and the rest is not theoretical: leaders generate 71% of revenue from digital products while mainstream peers manage just 23%.
• Companies that ignore their technical debt are on borrowed time, with IDC forecasting a 50% higher AI failure rate for laggards by 2027.

Across the Asia Pacific, boardrooms are buzzing with AI ambitions. But beneath the optimism, a stubborn obstacle is stalling progress: the creaking weight of legacy technology that companies have long deferred modernising.

New research commissioned by MongoDB and conducted by IDC paints a sobering picture. A survey of 1,400 organisations across eight markets found that 43% reported their existing architecture makes it impossible to build new applications without extensive modernisation, systems that their own staff describe as too rigid, too costly, and too slow for what the AI era demands.

The findings land at a pivotal moment. Companies across the region have moved from experimenting with AI pilots to attempting full-scale production deployments. That transition is brutally exposing the gap between ambition and infrastructure.

The data problem no one wants to talk about

At the root of the crisis is data quality. The most commonly cited software development challenge was data management and poor-quality data, named by 32% of organisations. Close behind were outdated database technology that cannot support AI workloads and the difficulty of embedding security into development without sacrificing speed, each cited by 31% of respondents.

In plain terms, many companies are attempting to build next-generation AI systems on platforms designed for a previous era of computing.

Supporting new AI initiatives was the main reason for modernising databases and applications, with 46% of organisations naming it as their top driver. Yet the path to modernisation is proving treacherous. Nine in ten organisations surveyed reported having experienced failed modernisation initiatives, with siloed and poor-quality data identified as the main obstacle.

A revenue divide is opening up

The research does more than catalogue frustration. It identifies a consequence that finance leaders cannot ignore: a measurable and growing commercial gap between companies that have modernised and those that have not.

A smaller group of companies described as leaders are pulling away from their peers, generating 71% of revenue from digital products and services, compared with just 23% among mainstream peers. Those leading organisations share a common trait. 58% are running multiple programmes to reduce legacy constraints and build cloud-ready foundations for AI systems in production, treating modernisation not as a project with an end date but as a permanent discipline.

The cost of standing still is rising sharply. IDC has forecast that organisations that do not address technical debt will face a 50% higher failure rate and rising costs for AI initiatives by 2027.

What the experts are saying

IDC’s Senior Research Director for Asia Pacific, Dr William Lee, was direct about what the data reveals. He described high-quality, integrated data as the essential fuel that determines the accuracy and performance of an AI application, and said many organisations are being held back by rigid legacy architectures that lack the flexibility and scalability to handle the high volume of unstructured data required for AI.

MongoDB’s Managing Director of CXO Advisory, Thorsten Walther, framed the issue in board-level terms, arguing that AI has made technical debt an urgent priority for senior leadership and that the research shows strategic modernisation unlocks AI opportunities and supports significant revenue growth.

A real-world example

The study points to Bendigo Bank as a concrete illustration of what modernisation can achieve. The bank moved a core banking application away from legacy relational database technology to MongoDB Atlas and used AI-assisted tools to break the work into smaller releases, reducing development time by up to 90% and cutting costs to one-tenth of a traditional migration, all without service outages.

The path forward

IDC outlined a set of steps for organisations seeking to improve their AI readiness, including stronger data quality and governance, modernising architectures that slow application development, building cloud-ready hybrid operating models, and investing in skills and change management.

The survey covered organisations with at least 100 employees across Australia, China, Hong Kong, India, Indonesia, Singapore, South Korea, and Thailand, spanning developers, IT decision-makers, and senior executives.

The picture that emerges is of a region at a crossroads. Those who treat modernisation as a strategic priority are pulling ahead commercially. Those who continue to defer it are not simply falling behind on technology benchmarks. They are falling behind on revenue, resilience, and their ability to compete in an economy that AI is rapidly reshaping.

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Food and drink giant PepsiCo is seeing significant gains after lowering prices on its signature snacks and beverages earlier this year to lure back cost-conscious consumers.

In February, the company slashed prices by up to 15% on its signature snacks, including Lay’s and Doritos, as Americans tightened their budgets amid persistently high costs.

PepsiCo CEO Ramon Laguarta told FOX Business anchor Liz Claman Thursday the strategy helped consumers financially and helped drive the company’s first growth in more than a year.

“It was a holistic transformation of the business. Price was one element,” he said on “The Claman Countdown”. “We thought that consumers needed more value given the economic situations.”

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Bags of Lay’s Classic potato chips are displayed at a grocery store on January 29, 2025, in San Anselmo, California. (Justin Sullivan/Getty Images)

PepsiCo recently reported revenue growth of 8.5% and a profit rise of 27% since slashing prices.

“We increased consumption volume by 2% in our food business in North America, units 4%, almost 300 million new occasions in this first quarter,” Laguarta explained. “So, we’re very pleased with the overall transformation of the business.”

Laguarta revealed the food and beverage giant is addressing new consumer standards as Americans lean towards less-processed foods and learn the risks associated with artificial ingredients like food dyes, commonly found in PepsiCo snacks.

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The CEO said PepsiCo is “innovating” to meet evolving consumer preferences, cutting sugar in drinks like Gatorade, and removing artificial dyes from snacks like Cheetos.

Boxes of PepsiCo’s Frito-Lay Flamin’ Hot flavored snacks including Cheetos, Fritos, Doritos tortilla chips, and Funyuns are displayed alongside packaged foods for sale at a warehouse grocery store in Hawthorne, California on Dec. 2, 2025.  (Patrick T. Fallon / AFP via Getty Images)

“We’re very optimistic about where we’re going in that part of the business,” he said.

PepsiCo launched Cheetos Simply NKD late last year, offering consumers a color-free alternative to the popular snack. He said it maintains the same flavor without artificial additives and without increasing costs.

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Laguarta said such innovation has been “well received” by consumers, pledging that PepsiCo will continue to expand those efforts.

“We’re seeing moms with little children that they’re saying, ‘Okay, now I can give my children my favorites, and I’m feeling good about it.’ So, this is a platform that now we’re taking everywhere.”

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Laguarta also addressed the “shrinkflation” as consumers grow frustrated with forking up more money for less product from food companies.

“We’re pleased with the execution of our pricing strategy, the fact that we’re giving consumers more value, especially in our multipacks and our multi-serve,” he told FOX Business.

The Chepstow medical devices firm said 25 staff will transfer over to a new company established by a management buyout team

Chepstow-based medical devices firm Creo Medical has agreed a sale of its manufacturing operation as part of an ongoing efficiency drive. The deal, the value of which has not been disclosed, is expected to be finalised next month via a management buyout.

Creo, which specialises in devices in the emerging field of minimally invasive surgical endoscopy for pre-cancer and cancer patients, said that 25 staff will transfer over to new entity NewCo, which will become a third party manufacturer of Creo devices.

It said the manufacturing disposal is consistent with its strategy to pivot to a “lean, new product introduction company that designs, builds and tests medical devices that are then produced by third party partners.” Having considered various options, it added that a management buyout represented the best outsourcing option.

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Peter Tomlinson, current chief operating officer at Creo and chief executive of NewCo, said: “his strategic decision marks an exciting new chapter for the Creo Medical operations team. Having developed the manufacturing capability within Creo, we see a clear opportunity to establish a focused, world-class medical device manufacturing and engineering business.

“We will have the agility to invest, scale, and support a wide range of medical device innovators while continuing to serve as a trusted partner to Creo. Our ambition is to build a highly capable and globally competitive manufacturing platform for advanced medical technologies.

“We remain deeply committed to supporting Creo Medical’s growth and innovation, and the long-term partnership between our organisations will continue to be a cornerstone of our future.”

Creo’s chief executive Craig Guliford said: “We have a commitment to improve the operational efficiency of the business and focus on our core strengths as a world class medical device design, clinical application and sales execution business. The outsourcing of product manufacturing has been a key part of this strategy, having already outsourced our next generation bipolar range in our near-term product launch program. This is a further important milestone enabling us to scale our business with increasing volumes on the back of a maturing manufacturing process.

“We are extremely proud of the sophisticated manufacturing operation and talented team we have developed for our class leading products over the last few years which have enabled us to reach this point.

“Having looked at the options available for our outsourcing strategy, it became very clear that the capability within the operations team stands out in the UK peer group we evaluated. I am excited to see our volumes grow in the short term and working closely with Peter and the team as they embark on realising the growth potential in this area of the devices market.

“This enables the team at Creo to focus on that which is unique to us, significantly differentiated product design, clinical application and sales execution through our sales channels with real traction and momentum.”

In a trading statement in January, and in line with market expectation and management guidance, Creo said it achieved a revenue growth of 50% in 2025, to £6m with a far strong second half to the year. Underlying operating losses reduced by more than 40% to £13.3m with cash and cash equivalents of £12.4m (£8.7m at year end 2024). It will publish its full accounts for the year this summer.

In a brokers note Shore Capital said it believes that Creo is on track to reaching an Ebitda breakeven position in 2028.

It said: “Creo Medical is at a commercial inflection point. In FY25, sales of its surgical endoscopy tools grew substantially (up 50%) despite a tightening cost base ( down 20%), establishing that the model is starting to scale as clinical adoption compounds. With US reimbursement secured for Speedboat and a new suite of products expected to launch in the next 12 months, we see growth continuing to accelerate and believe the framework now exists for CREO to grow to a place of self-sufficiency and reach Ebitda breakeven in FY28.

“£Further progress with its MicroBlate lung cancer programme, which is being advanced in collaboration with robotics behemoth Intuitive Surgical, is also expected in this timeframe and could crystalise significant unrecognised value.”