WEBVTT - David Snyderman on Specialty Finance and Data in Investing

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. This is Master's in

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<v Speaker 1>Business with Barry rid Holds on Bloomberg Radio. This week

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<v Speaker 1>on the podcast, I have a fascinating and extra special guest.

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<v Speaker 1>David Sneinermann has put together an incredible career in fixed income,

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<v Speaker 1>alternative credit, and really just an amazing way of looking

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<v Speaker 1>at risk and trade structure and how to figure out

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<v Speaker 1>probabilistic potential outcomes rather than playing the usual forecasting and

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<v Speaker 1>macro tourist game. He is global head of all credit

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<v Speaker 1>and fixed income and managing partner at Magnetar. They have

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<v Speaker 1>an incredible track record. They've put together a string of

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<v Speaker 1>j huge returns. They are not like any other funds

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<v Speaker 1>that you'll hear me talk about. Their pre unique and

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<v Speaker 1>specific in the world. I found this conversation to be fascinating,

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<v Speaker 1>and even though we kind of wander off into the

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<v Speaker 1>weeds of private credit, it's so informative and so interesting.

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<v Speaker 1>I think you'll you'll really enjoy it. With no further

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<v Speaker 1>ado my discussion with Magnetars David Snyderman.

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<v Speaker 2>Thank you very much for having me, Barry. I really

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<v Speaker 2>appreciate it and I'm looking forward to our conversation.

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<v Speaker 1>I am. Also, I'm very familiar with Magnetar and it's history.

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<v Speaker 1>It's really a fascinating firm in so many ways. Let's start, though,

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<v Speaker 1>talking a little bit about your background. You grow up

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<v Speaker 1>in suburban New Jersey and then you head to Saint

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<v Speaker 1>Louis for college. Tell us a little bit about where

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<v Speaker 1>you went, what you studied.

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<v Speaker 2>Sure, I grew up in Freehold, New Jersey, so most

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<v Speaker 2>people a know home of Bruce Springsteen. You know, my

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<v Speaker 2>focus coming out of high school was playing football. I

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<v Speaker 2>want to play football at the highest level I could.

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<v Speaker 1>You are not much bigger than me. What made you

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<v Speaker 1>think you could play on the gridiron?

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<v Speaker 2>I don't know. I thought I could, but I definitely

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<v Speaker 2>thought I could at the time, and so I wanted

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<v Speaker 2>to play at the highest level possible. My parents were

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<v Speaker 2>much more focused on academic institution and so wash you

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<v Speaker 2>sort of met both criteria.

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<v Speaker 1>Did you play born college?

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<v Speaker 2>I did all four years. It was a lot of fun.

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<v Speaker 1>What position did you play?

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<v Speaker 2>I played strong safety, and yeah Division three is the

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<v Speaker 2>highest level I could play up, but I loved it.

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<v Speaker 1>Right, So safety you have to be pretty fast, and.

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<v Speaker 2>That was the issue.

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<v Speaker 1>So but for that you would have gone pro there

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<v Speaker 1>you go. What did you study at Washoe.

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<v Speaker 2>Washoo back then? Was it was a great They had

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<v Speaker 2>a great medical school and they still do today. And

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<v Speaker 2>in my family, being a doctor was the highest level

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<v Speaker 2>of achievement. So I had an older sister starting medical school,

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<v Speaker 2>and I had a relative that is actually a dean

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<v Speaker 2>of Duke Medical School. So I had this nice glide

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<v Speaker 2>path to be a doctor.

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<v Speaker 1>Right.

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<v Speaker 2>So I started off pre med, but I didn't end

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<v Speaker 2>pre med. I found out quickly that's not what I

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<v Speaker 2>wanted to do. The hardest part is telling my parents

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<v Speaker 2>and especially my grandparents, you know, no more pre med.

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<v Speaker 2>So I switched to be an economics major. I graduated

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<v Speaker 2>economics with a lot of courseworking accounting and finance.

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<v Speaker 1>Huh. Interesting. So you come out of college, you go

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<v Speaker 1>to Price Waterhouse Cooper and then Coke Industries, where you're

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<v Speaker 1>focusing on convertible securities, merger arm and special situations. How

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<v Speaker 1>do you get from medical school to that? What was

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<v Speaker 1>the career plan?

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<v Speaker 2>Yeah? My path was certainly non traditional. I didn't go

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<v Speaker 2>to one of the East Coast Ivy League schools, knowing

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<v Speaker 2>I wanted to go to Wall Street. I didn't even

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<v Speaker 2>know what Wall Street. Working on Wall Street meant at

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<v Speaker 2>the time, So for me, it was much more around,

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<v Speaker 2>you know, being around fantastic people and really taking advantage

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<v Speaker 2>of opportunities. It's like you said, I started a price

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<v Speaker 2>waterhouse and I went through a one year rotation there.

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<v Speaker 2>So it started with audit, so I saw many companies,

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<v Speaker 2>then tax and financial services, so it's a great training

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<v Speaker 2>ground to understand how, you know, theoretics went into the

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<v Speaker 2>practical business. From there, I went to Coke Industries and

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<v Speaker 2>I had a great experience of Coke. I was there

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<v Speaker 2>five years. I worked in three different places for them.

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<v Speaker 2>So I started in Houston, Texas, and I worked on

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<v Speaker 2>their natural gas business. Then this opportunity came up in Switzerland.

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<v Speaker 2>So it's a thirteen thousand person company and there were

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<v Speaker 2>going to be five people in Switzerland to manage about

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<v Speaker 2>several hundred million dollars more in cash optimization. So I

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<v Speaker 2>had the opportunity to be a junior person there. I'd

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<v Speaker 2>never left the US before, so I was sat in

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<v Speaker 2>the middle of Switzerland and sat there for two years

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<v Speaker 2>and worked in that business, and then went to Wichita, Kansas,

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<v Speaker 2>which tak Kansas was the home office and there were

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<v Speaker 2>sort of a dozen of us, very simply situated, you know,

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<v Speaker 2>all young and hungry. But they had great management at Coke.

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<v Speaker 2>They really encouraged us to start businesses. So I remember

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<v Speaker 2>writing the merger our business plan there and then implementing

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<v Speaker 2>the business. So a quick fun fact about Coke at

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<v Speaker 2>Magnetar today we have three of my prior bosses that

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<v Speaker 2>you know from Coke, so it's pretty neat. But to

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<v Speaker 2>answer your question, like, I had a lot of broad

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<v Speaker 2>experiences by the time I was in my mid twenties,

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<v Speaker 2>but no real direction on what my career was going

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<v Speaker 2>to be.

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<v Speaker 1>Where in Switzerland was a Geneva somewhere.

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<v Speaker 2>Else it was Frebourg, So a town twenty minutes from

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<v Speaker 2>Burnho was a tax free canton.

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<v Speaker 1>Uh huh.

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<v Speaker 2>So I was in a town that spoke, you know,

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<v Speaker 2>half French and half German and I spoke English.

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<v Speaker 1>So there you go. But no taxes, no income.

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<v Speaker 2>Taxes, no income taxes for the company.

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<v Speaker 1>And then Coke Industries. I don't think a lot of

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<v Speaker 1>people realized one of the largest private companies in the

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<v Speaker 1>United States and maybe even the largest. They're giant energy powerhouse.

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<v Speaker 1>What else does Coke do?

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<v Speaker 2>Yeah, so when I was there, that had thirteen thousand people,

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<v Speaker 2>and that was before they bought Georgia Pacific. I think

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<v Speaker 2>now it's probably thirty five thousand people. Immens It's immense,

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<v Speaker 2>and so they have many, many different business lines there.

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<v Speaker 2>For me, I sat mostly in their internal really an

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<v Speaker 2>internal hedge fund, so it was their excess cash. They

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<v Speaker 2>borrowed money at live bid at the time, so they

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<v Speaker 2>borrowed money very cheaply, and our job was to make

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<v Speaker 2>money on that money.

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<v Speaker 1>So you end up as head of global credit and

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<v Speaker 1>senior managing director at Citadel Investment Group. Was that right

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<v Speaker 1>from Coke Industries? That was seven years at Citadel. That's

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<v Speaker 1>supposed to be a tough shop.

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<v Speaker 2>To work at.

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<v Speaker 1>What was your experience like there?

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<v Speaker 2>It was a perfect job for me at the time,

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<v Speaker 2>So I always thought I worked at a high level

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<v Speaker 2>of intensity right right. But when I got there, I

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<v Speaker 2>realized I was one of many. But I had the

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<v Speaker 2>opportunity to work for gentleman Dave Bunning. He was one

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<v Speaker 2>of the original few handful of people that started at Citadel.

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<v Speaker 2>And Dave was fantastic in so many different ways. A

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<v Speaker 2>great leader, a great investor, but really a great person

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<v Speaker 2>and he took me under his wing there. It was

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<v Speaker 2>a lot of work, but a lot of formidable lessons

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<v Speaker 2>came out of my time there. Right. So the first

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<v Speaker 2>one that I think about is the investing business itself

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<v Speaker 2>is an operating business. So we really have to understand

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<v Speaker 2>what we're going to invest in. Value everything in the universe, rank,

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<v Speaker 2>order them, and then only can we put together portfolios.

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<v Speaker 2>And the second, and this is very credit specific, was

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<v Speaker 2>when you own a credit portfolio, your short volatility. So

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<v Speaker 2>what that simply means is if you have a dislocation,

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<v Speaker 2>you're gonna lose a lot of money, uh huh. And

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<v Speaker 2>so to put together credit portfolios, we have to find

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<v Speaker 2>hedges that offset that short volatility. So really learning the

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<v Speaker 2>value of options right was probably the biggest lesson coming

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<v Speaker 2>out of Citadel.

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<v Speaker 1>So I want to rephrase that for some of the

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<v Speaker 1>less option involve savvy members of the audience. When we

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<v Speaker 1>buy fixed income, we just wanted to be steady and

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<v Speaker 1>pay a divinend and not swing up and down. And

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<v Speaker 1>if it does swing up and down, the odds are

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<v Speaker 1>it's not in your favor. That volatility you can look

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<v Speaker 1>at as an insurance product. If the volatility goes up, Hey,

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<v Speaker 1>we can make a bet that will offset the draw

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<v Speaker 1>down in the bonds.

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<v Speaker 2>That's exactly right, all right.

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<v Speaker 1>And you you at Citadel, you were running a convertible

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<v Speaker 1>bond and credit trading desk. Is that what you eventually

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<v Speaker 1>ended up as head of Global Credit?

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<v Speaker 2>That's correct. I started there on the convertible bond arbitrage desk,

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<v Speaker 2>and then we started capital structure arbitrage, which meant we were,

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<v Speaker 2>you know, buying or selling credit and against that buying

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<v Speaker 2>and selling equities. And finally we consolidated that together and

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<v Speaker 2>I ran that business for Ken and Citadel.

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<v Speaker 1>And some of the folks Ken being Ken Griffin. When

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<v Speaker 1>people say Citadel is a lot of work, you don't

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<v Speaker 1>realize there's a whole other gear you have to move

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<v Speaker 1>into and its next level was that your experience.

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<v Speaker 2>It was and for me, I actually loved that part

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<v Speaker 2>of Citadel. It was sixteen hour days and it was

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<v Speaker 2>six or seven days a week, but you really got

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<v Speaker 2>to learn the financial markets there.

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<v Speaker 1>Huh. Interesting. So Magnetar launches in two thousand and five

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<v Speaker 1>with some capital and you joined. You you weren't one

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<v Speaker 1>of the original founders, but you joined not long afterwards.

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<v Speaker 2>That's correct. So Alec Litowitz and Ross Lazar founded the firm,

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<v Speaker 2>and you know I did join the day we launched

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<v Speaker 2>our main fund. Now, for me, Alec was a known quantity.

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<v Speaker 2>He ran equities at Citadel with Dave Bunning, my prior

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<v Speaker 2>boss there, and then when I moved up into Dave's spot,

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<v Speaker 2>Alec moved out and they started and he spent I

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<v Speaker 2>think two years in a noncompete and then started Magnetar.

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<v Speaker 2>Him and Ross Lazar co founded the firm, and they

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<v Speaker 2>had a vision to co found the firm, and I

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<v Speaker 2>bought into the vision immediately, and Alec always did a

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<v Speaker 2>great job of laying it out right. And first was

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<v Speaker 2>we're going to have a culture of collaboration. So back then,

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<v Speaker 2>you probably remember in two thousand and five, you know,

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<v Speaker 2>there were a lot of what they call pod shops,

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<v Speaker 2>so they give individual asset allocation to people and they'd

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<v Speaker 2>go invest their money. This was going to be a

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<v Speaker 2>multi strategy vehicle, so we'd have credit, we'd have equities,

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<v Speaker 2>we'd have hedge fund strategies, but with no silos. So

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<v Speaker 2>we're going to work together and put best opportunities into

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<v Speaker 2>the portfolio.

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<v Speaker 1>So you have people from Coke Industries with you. You

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<v Speaker 1>have people from Citadel. Did those prior employees have a

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<v Speaker 1>piece of you guys? Did they seed you, did they

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<v Speaker 1>invest you? Or was it just a clean break and

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<v Speaker 1>we're off on our own.

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<v Speaker 2>It was a clean break. And Ross Lazar came from

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<v Speaker 2>the fund of Funds World and he was the primary

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<v Speaker 2>money raiser and business builder there and so he did

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<v Speaker 2>a fantastic job. I think were the largest launch of

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<v Speaker 2>two thousand and five with about two point three billion dollars.

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<v Speaker 1>How long did it take you to get up and running?

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<v Speaker 1>Were you felt, oh, this is really all the pieces

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<v Speaker 1>are in place.

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<v Speaker 2>Yeah, it's a good question and funny funny you asked

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<v Speaker 2>that question because we talk about it often around Magnetar.

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<v Speaker 2>You know, I started and I hired three or four

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<v Speaker 2>people that I started with, and Ross Lazar, right, and

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<v Speaker 2>again he's a he's my partner, my close friend, and

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<v Speaker 2>a great business builder. Two weeks into it, he came

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<v Speaker 2>to me and said, what's the first investment, Like, when

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<v Speaker 2>are you going to start investing? And I said to Ross, look,

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<v Speaker 2>we were gonna build the systems in infrastructure to prepare

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<v Speaker 2>to invest first, and.

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<v Speaker 1>I need a computer and an internet netline and maybe

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<v Speaker 1>a trader to help us out.

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<v Speaker 2>That's exactly what what Ross was saying. And he very

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<v Speaker 2>politely said to me, you know, you're here to invest,

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<v Speaker 2>not to build software. And so he I think he

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<v Speaker 2>stopped by my desk for the next nine months every

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<v Speaker 2>single day and asked the same question. But it truly

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<v Speaker 2>took us nine months to build the systems in infrastructure

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<v Speaker 2>just to be investment ready.

0:11:30.559 --> 0:11:34.160
<v Speaker 1>Wow, that's amazing nine months. And I have to ask

0:11:34.600 --> 0:11:39.160
<v Speaker 1>why Evanston in Illinois? I mean, I like Lumel, Natty's

0:11:39.160 --> 0:11:41.560
<v Speaker 1>and super Dog as much as the next guy, but

0:11:41.920 --> 0:11:46.440
<v Speaker 1>why the middle of the Illinois suburbs the Chicago suburbs.

0:11:46.720 --> 0:11:48.640
<v Speaker 2>Yeah, so it was just north of the city and

0:11:48.640 --> 0:11:50.960
<v Speaker 2>it's across the street from Northwestern, so that would be

0:11:51.000 --> 0:11:53.800
<v Speaker 2>the draw. You know, the train lines in there, so

0:11:53.840 --> 0:11:57.000
<v Speaker 2>you can recruit people from the city. But it was

0:11:57.040 --> 0:11:59.920
<v Speaker 2>probably a little more selfish, like we all lived on

0:12:00.120 --> 0:12:02.280
<v Speaker 2>the north shore of Chicago and so it was an

0:12:02.320 --> 0:12:05.439
<v Speaker 2>easy commute for us to work, and so that that's

0:12:05.480 --> 0:12:06.920
<v Speaker 2>where we started the firm.

0:12:06.760 --> 0:12:09.360
<v Speaker 1>And that is really a lovely part of the world

0:12:09.600 --> 0:12:14.040
<v Speaker 1>on the lake. It's such a manageable, easy city to

0:12:14.320 --> 0:12:17.240
<v Speaker 1>operate within. I mean, the winters are a little cold,

0:12:17.240 --> 0:12:19.360
<v Speaker 1>but still it's a lovely place.

0:12:19.760 --> 0:12:22.920
<v Speaker 2>It's a great quality of life in Chicago and outside

0:12:22.960 --> 0:12:23.560
<v Speaker 2>of Chicago.

0:12:24.080 --> 0:12:27.439
<v Speaker 1>So only a few years later, we're right in the

0:12:27.559 --> 0:12:31.600
<v Speaker 1>teeth of the Great Financial Crisis. How did you guys

0:12:31.720 --> 0:12:32.440
<v Speaker 1>navigate that?

0:12:32.600 --> 0:12:35.679
<v Speaker 2>We were very fortunate and we performed quite well in

0:12:35.720 --> 0:12:38.400
<v Speaker 2>our credit strategies, which which certainly we can talk about.

0:12:38.720 --> 0:12:43.079
<v Speaker 2>We had both long and short credit products, and we

0:12:43.240 --> 0:12:47.400
<v Speaker 2>had a long voltary position, meaning meaning we protected the

0:12:47.440 --> 0:12:50.280
<v Speaker 2>balance sheet very well if there was a dislocation. And

0:12:50.280 --> 0:12:52.200
<v Speaker 2>I think that went back to some of the prior

0:12:52.320 --> 0:12:55.440
<v Speaker 2>lessons from prior firms, like we really need to have

0:12:55.559 --> 0:12:58.600
<v Speaker 2>portfolios that we protect the balance sheet and make sure

0:12:58.640 --> 0:13:01.800
<v Speaker 2>that we're able to stand up in difficult environments.

0:13:01.960 --> 0:13:04.839
<v Speaker 1>I have noticed that a lot of firms that describe

0:13:04.880 --> 0:13:10.360
<v Speaker 1>themselves as hedge funds really aren't very hedged. You guys

0:13:10.400 --> 0:13:13.360
<v Speaker 1>operated pretty fully hedged it most of the time, right.

0:13:13.800 --> 0:13:18.120
<v Speaker 2>We really did. And the systems in infrastructure we built

0:13:18.240 --> 0:13:22.040
<v Speaker 2>were not only to measure risk, but to manage that risk,

0:13:22.480 --> 0:13:25.600
<v Speaker 2>and so we'd find good investments both on the long

0:13:25.640 --> 0:13:26.480
<v Speaker 2>and short side.

0:13:27.040 --> 0:13:29.839
<v Speaker 1>So even if you have a position that that's long

0:13:29.960 --> 0:13:33.679
<v Speaker 1>you have an offsetting or matching position, or do you

0:13:33.800 --> 0:13:36.800
<v Speaker 1>just hedge out that long position with a short bet.

0:13:37.080 --> 0:13:40.000
<v Speaker 2>So there's a quality of earning's question embedded, and I

0:13:40.040 --> 0:13:42.880
<v Speaker 2>think what you said, and that's we're trying not to

0:13:42.960 --> 0:13:47.200
<v Speaker 2>take macro level bets. Those for us are low quality bets.

0:13:47.720 --> 0:13:50.280
<v Speaker 2>And so what we're trying to take is idiosyncratic bets,

0:13:50.320 --> 0:13:53.880
<v Speaker 2>meaning we're focused on one factor or're betting on that factor.

0:13:54.400 --> 0:13:56.720
<v Speaker 2>Then we're going to hedge out all of the macro

0:13:56.880 --> 0:13:58.280
<v Speaker 2>risks around the portfolio.

0:13:58.559 --> 0:14:02.720
<v Speaker 1>Huh. Really interesting. So we were talking about you guys

0:14:02.880 --> 0:14:07.600
<v Speaker 1>launched a few years right before the financial crisis. I

0:14:07.640 --> 0:14:10.000
<v Speaker 1>wanted to talk about a couple of trades from that era,

0:14:10.559 --> 0:14:14.480
<v Speaker 1>perhaps most famously, you guys put on a CDO bet,

0:14:15.240 --> 0:14:19.280
<v Speaker 1>a collateralized debt obligation bet that was designed to do

0:14:19.400 --> 0:14:24.760
<v Speaker 1>well if housing made some extreme moves and it was nondirectional.

0:14:24.800 --> 0:14:26.800
<v Speaker 1>It was hedge. Tell us a little bit about the

0:14:26.840 --> 0:14:30.280
<v Speaker 1>magnetar CDO bet from the financial crisis.

0:14:30.520 --> 0:14:33.800
<v Speaker 2>I talked about setting up the infrastructure to prepare to invest,

0:14:33.880 --> 0:14:36.240
<v Speaker 2>and we looked at every asset class. So we looked

0:14:36.280 --> 0:14:39.920
<v Speaker 2>at corporates, we looked at mortgages, we looked at credit cards,

0:14:40.560 --> 0:14:43.240
<v Speaker 2>and what we found in the mortgage market is something

0:14:43.280 --> 0:14:46.800
<v Speaker 2>you don't read about in textbooks. We found that we

0:14:46.920 --> 0:14:51.120
<v Speaker 2>could invest on the longside in what they called the

0:14:51.200 --> 0:14:54.440
<v Speaker 2>equity piece or the most risky piece of a CDO,

0:14:55.200 --> 0:14:58.920
<v Speaker 2>and we could short the next level up, so the

0:14:58.960 --> 0:15:01.960
<v Speaker 2>mezzanine piece, and we could short two or three times

0:15:02.000 --> 0:15:05.240
<v Speaker 2>the amount. But what was super interesting was we were

0:15:05.240 --> 0:15:07.960
<v Speaker 2>getting paid to hold an option that never happened.

0:15:08.000 --> 0:15:10.480
<v Speaker 1>Right, Options cost you money, and that's the old joke.

0:15:11.120 --> 0:15:13.760
<v Speaker 1>Option traders never die, they just expire worthless.

0:15:13.920 --> 0:15:16.360
<v Speaker 2>That's exactly right. In this case, we were going to

0:15:16.440 --> 0:15:18.800
<v Speaker 2>hold an option that we were going to get paid

0:15:19.120 --> 0:15:20.600
<v Speaker 2>fifteen to twenty percent a year.

0:15:20.680 --> 0:15:22.680
<v Speaker 1>Though, oh really, that's real money.

0:15:22.560 --> 0:15:25.360
<v Speaker 2>So you never see that and you never read about that.

0:15:25.680 --> 0:15:27.400
<v Speaker 2>But that's the way the markets set up. It was

0:15:27.480 --> 0:15:30.680
<v Speaker 2>just too fragmented. You had people that were willing to

0:15:30.760 --> 0:15:34.640
<v Speaker 2>buy pieces of these structured products because of the ratings,

0:15:35.000 --> 0:15:37.240
<v Speaker 2>and on things that weren't rated, no one was willing

0:15:37.280 --> 0:15:40.440
<v Speaker 2>to buy. So we took the other side of that trade.

0:15:40.480 --> 0:15:44.240
<v Speaker 1>So you bought the unrated portions and you shorted the

0:15:44.360 --> 0:15:48.000
<v Speaker 1>rated portions. That's correct, that's very contrary that's very interesting.

0:15:48.400 --> 0:15:51.840
<v Speaker 1>How did you identify that opportunity? That's such a talk

0:15:51.880 --> 0:15:57.080
<v Speaker 1>about idiosyncretic niche trades? How did you figure that out?

0:15:57.280 --> 0:16:00.240
<v Speaker 2>The firm was built on finding white spaces, and so

0:16:00.320 --> 0:16:02.920
<v Speaker 2>I remember back back in two thousand and five when

0:16:02.920 --> 0:16:05.640
<v Speaker 2>we first started, you know, we'd think about the banks.

0:16:05.680 --> 0:16:08.360
<v Speaker 2>The banks would have an equity trading desk and they'd

0:16:08.360 --> 0:16:11.280
<v Speaker 2>have a debt desk, and they'd both value the same companies,

0:16:11.640 --> 0:16:14.440
<v Speaker 2>and both sides of the firm with vlume completely differently.

0:16:14.640 --> 0:16:17.000
<v Speaker 2>And so for us, those are exactly the opportunities we

0:16:17.000 --> 0:16:19.320
<v Speaker 2>were looking for. But we didn't find it in the

0:16:19.360 --> 0:16:21.960
<v Speaker 2>corporate markets. We found it in the mortgage market. It

0:16:22.040 --> 0:16:26.640
<v Speaker 2>was so fragmented that the machine that sold rated products

0:16:27.120 --> 0:16:29.400
<v Speaker 2>hit all the right buyers, but no one could sell

0:16:29.440 --> 0:16:33.680
<v Speaker 2>the unrated piece. The unrated piece yielded twenty twenty five percent,

0:16:33.880 --> 0:16:36.320
<v Speaker 2>where the rated piece would yield three to five percent,

0:16:36.840 --> 0:16:39.880
<v Speaker 2>And so that difference was the arbitrage that we saw.

0:16:40.240 --> 0:16:44.120
<v Speaker 1>So heading into five six, we saw real estate peek

0:16:44.160 --> 0:16:47.360
<v Speaker 1>in I want to say, in volume in five and

0:16:47.400 --> 0:16:51.560
<v Speaker 1>price and six. So if you're getting paid fifteen twenty

0:16:51.640 --> 0:16:54.920
<v Speaker 1>percent to hold the unrated piece, isn't there a lot

0:16:54.920 --> 0:16:57.880
<v Speaker 1>of downside risk that hey, if some of these mortgages

0:16:57.960 --> 0:17:00.440
<v Speaker 1>go south, you could see, you know, you get cut

0:17:00.520 --> 0:17:01.240
<v Speaker 1>in half or worse.

0:17:02.120 --> 0:17:05.600
<v Speaker 2>That's exactly right, and so our what the modeling actually said, though,

0:17:05.720 --> 0:17:08.480
<v Speaker 2>is if nothing happens in the world, we make this

0:17:08.680 --> 0:17:13.240
<v Speaker 2>twenty percent return. But if anything happened, not only would

0:17:13.240 --> 0:17:16.600
<v Speaker 2>our equity piece suffer, but the short side or our

0:17:16.640 --> 0:17:20.040
<v Speaker 2>mezzanine pieces would make the money back. And that's the raceo,

0:17:20.480 --> 0:17:22.919
<v Speaker 2>that's the ratio we had to be on. So what

0:17:22.960 --> 0:17:25.359
<v Speaker 2>they call that is delta neutral in the options world.

0:17:25.920 --> 0:17:29.479
<v Speaker 2>So we had a we were hedging an option, and

0:17:29.520 --> 0:17:33.160
<v Speaker 2>that hedge made us a lot of money in downside scenarios,

0:17:33.480 --> 0:17:35.960
<v Speaker 2>but that was never the focus. We didn't know the

0:17:36.000 --> 0:17:38.720
<v Speaker 2>housing market would crash. We had no idea. What we

0:17:38.840 --> 0:17:41.480
<v Speaker 2>had was a trade or an investment that we'd make

0:17:41.520 --> 0:17:44.119
<v Speaker 2>twenty percent a year on and if anything happened in

0:17:44.160 --> 0:17:46.600
<v Speaker 2>the world, we've really protected the balance sheet. It just

0:17:46.960 --> 0:17:47.959
<v Speaker 2>happened quite quickly.

0:17:48.280 --> 0:17:50.560
<v Speaker 1>So let's talk a little bit about what's going on today,

0:17:51.240 --> 0:17:57.880
<v Speaker 1>especially in some of the private alternative spaces you've talked about.

0:17:58.040 --> 0:18:02.359
<v Speaker 1>Pensions are now facing ill equids. The issues because private

0:18:02.400 --> 0:18:05.879
<v Speaker 1>equity and venture capital have gates up a lot of

0:18:05.920 --> 0:18:09.360
<v Speaker 1>long term tie ups. How has this affected your business?

0:18:10.160 --> 0:18:13.080
<v Speaker 2>That's been the most challenging part of the business. Really,

0:18:13.520 --> 0:18:16.720
<v Speaker 2>it really hasn't. And pension funds they're on hold today,

0:18:16.880 --> 0:18:20.000
<v Speaker 2>they're not investing, and it's been not just a headwind

0:18:20.000 --> 0:18:22.920
<v Speaker 2>for us, but for the entire industry. So I'll step

0:18:22.960 --> 0:18:25.720
<v Speaker 2>back and I'll give you my view on it. So

0:18:26.000 --> 0:18:30.159
<v Speaker 2>pensions have this mandate, they have a diversified portfolio they

0:18:30.200 --> 0:18:33.320
<v Speaker 2>invest in, they receive cash flow from the portfolio, and

0:18:33.400 --> 0:18:36.520
<v Speaker 2>that supports their retiree benefits. So they're always making this

0:18:36.640 --> 0:18:40.840
<v Speaker 2>judgment while I produce enough cash to manage those liabilities.

0:18:41.119 --> 0:18:43.000
<v Speaker 2>What happened over the last year and a half or

0:18:43.040 --> 0:18:47.760
<v Speaker 2>so is rates went up and valuations went down. Now,

0:18:47.760 --> 0:18:51.320
<v Speaker 2>the handshake agreement with the venture firms and the private

0:18:51.320 --> 0:18:54.320
<v Speaker 2>equity firms was give them a dollar today and in

0:18:54.359 --> 0:18:56.920
<v Speaker 2>five years they'll give you back two or three dollars, right,

0:18:56.960 --> 0:18:59.800
<v Speaker 2>depending on how the fund did. They've stopped giving back

0:18:59.840 --> 0:19:03.080
<v Speaker 2>that capital today. Oh really, And so the pension funds

0:19:03.080 --> 0:19:06.879
<v Speaker 2>are faced with this illiquidity problem, and so they're borrowing

0:19:06.880 --> 0:19:10.120
<v Speaker 2>money against their portfolios. They're selling positions in their portfolios.

0:19:10.280 --> 0:19:13.920
<v Speaker 2>But what they're not doing is taking on new investments. Now,

0:19:13.920 --> 0:19:16.479
<v Speaker 2>there's a flip side to this. Whenever we have trouble

0:19:16.560 --> 0:19:20.320
<v Speaker 2>raising capital, the investment opportunities are usually very good. So

0:19:20.359 --> 0:19:22.760
<v Speaker 2>our pipeline is extremely robust today.

0:19:22.960 --> 0:19:26.560
<v Speaker 1>Huh, that's really intriguing. Do you see this across the

0:19:26.600 --> 0:19:30.040
<v Speaker 1>board or is it really just more generalized that when

0:19:30.119 --> 0:19:34.600
<v Speaker 1>you have the dislocation of five hundred plus basis points

0:19:34.960 --> 0:19:38.040
<v Speaker 1>in eighteen months, what does that do to the landscape.

0:19:38.119 --> 0:19:40.800
<v Speaker 2>It always changes the landscape, and so no one's ever

0:19:40.880 --> 0:19:44.560
<v Speaker 2>prepared for moves of that size, even though everyone says

0:19:44.600 --> 0:19:48.320
<v Speaker 2>they are. And so it's opportunities that have come out

0:19:48.320 --> 0:19:51.600
<v Speaker 2>of this mainly are around the banks today, right, and

0:19:51.680 --> 0:19:53.720
<v Speaker 2>so we can talk a little bit more about that.

0:19:53.880 --> 0:19:56.800
<v Speaker 1>Well, let's talk a bit about Magnetar has more of

0:19:56.840 --> 0:20:01.919
<v Speaker 1>a specialty finance focus than other credit managers. Tell us

0:20:01.960 --> 0:20:05.320
<v Speaker 1>about that and how has the shift and rates impacted

0:20:05.440 --> 0:20:06.679
<v Speaker 1>specialty financed.

0:20:07.080 --> 0:20:11.240
<v Speaker 2>Yeah, so after the GFC, these private credit markets really

0:20:11.240 --> 0:20:13.800
<v Speaker 2>developed and they went in two different directions. They went

0:20:13.800 --> 0:20:16.080
<v Speaker 2>in direct lending, right, and so ninety percent of the

0:20:16.080 --> 0:20:19.000
<v Speaker 2>market went direct lending. So that's going to middle market

0:20:19.040 --> 0:20:22.560
<v Speaker 2>companies and disintermating the banks and lending directly to them.

0:20:23.000 --> 0:20:25.000
<v Speaker 2>For us, we went in a different direction. We went

0:20:25.040 --> 0:20:29.360
<v Speaker 2>in specialty finance and especially finances is a bit smaller,

0:20:29.760 --> 0:20:32.440
<v Speaker 2>but it's been around for ages and it touches our

0:20:32.480 --> 0:20:33.280
<v Speaker 2>lives every day.

0:20:33.480 --> 0:20:35.560
<v Speaker 1>Define it if you would, Yeah, so's it's.

0:20:35.400 --> 0:20:38.240
<v Speaker 2>The cars we drive, so auto loans, it's the houses

0:20:38.320 --> 0:20:43.920
<v Speaker 2>we buyer ranso, it's mortgages. It's the podcasts that we stream, right,

0:20:43.960 --> 0:20:47.600
<v Speaker 2>so it's all the music royalties and streaming royalties. So

0:20:47.640 --> 0:20:50.760
<v Speaker 2>it's it's assets like that. And the interesting part about

0:20:50.760 --> 0:20:55.000
<v Speaker 2>these assets is there's a very strong investment thesis around

0:20:55.000 --> 0:20:58.320
<v Speaker 2>them because they have three attributes when combined together, that

0:20:58.359 --> 0:21:01.240
<v Speaker 2>most other asset classes don't have, and certainly I don't

0:21:01.240 --> 0:21:04.720
<v Speaker 2>think direct lending has. So the first is you can

0:21:04.760 --> 0:21:09.800
<v Speaker 2>find very stable payoff profiles. Second, you can find assets

0:21:10.000 --> 0:21:14.280
<v Speaker 2>or these payoff profiles that don't correlate to the overall market,

0:21:14.400 --> 0:21:17.119
<v Speaker 2>so you're not worried about them moving with the SMP

0:21:17.280 --> 0:21:20.879
<v Speaker 2>or the highyield index. And third, and most importantly, they

0:21:20.880 --> 0:21:23.000
<v Speaker 2>don't correlate to one another. And so I'll give you

0:21:23.040 --> 0:21:25.919
<v Speaker 2>an example of a three asset portfolio. So In our

0:21:26.000 --> 0:21:30.439
<v Speaker 2>music royalty portfolio, returns could be driven by an artist's

0:21:30.440 --> 0:21:34.080
<v Speaker 2>song downloads like Taylor Swift downloads. And in our solar

0:21:34.119 --> 0:21:37.520
<v Speaker 2>finance portfolio, it's by how much sunlight there is in

0:21:37.560 --> 0:21:40.320
<v Speaker 2>a particular region. Or lately we've been lending a lot

0:21:40.359 --> 0:21:44.840
<v Speaker 2>against in video GPUs for cloud usage and that's driven

0:21:44.920 --> 0:21:48.040
<v Speaker 2>by aim machine learning growth. If I think about just

0:21:48.119 --> 0:21:52.199
<v Speaker 2>those three assets, they shouldn't correlate to the SMP, but

0:21:52.280 --> 0:21:55.240
<v Speaker 2>they certainly shouldn't correlate to one another. That's how we

0:21:55.280 --> 0:21:57.880
<v Speaker 2>can really produce a high quality of earnings for our investors.

0:21:58.480 --> 0:22:02.399
<v Speaker 1>Really interesting you mentioned in banks earlier. I know that

0:22:02.520 --> 0:22:07.120
<v Speaker 1>Magnetar has had opportunities to partner with banks via what

0:22:07.160 --> 0:22:10.720
<v Speaker 1>some people call rig cap transactions. Tell us a little

0:22:10.720 --> 0:22:11.679
<v Speaker 1>bit about those.

0:22:11.800 --> 0:22:14.640
<v Speaker 2>So rag cap or some people call them significant risk

0:22:14.680 --> 0:22:19.159
<v Speaker 2>transfer transactions. That is a massive opportunity for credit funds today.

0:22:19.480 --> 0:22:21.639
<v Speaker 2>And so a lot of people would think that the

0:22:21.680 --> 0:22:25.840
<v Speaker 2>banks are selling assets, right, but in our experience, we're

0:22:25.880 --> 0:22:29.359
<v Speaker 2>seeing them efficiently transfer the credit risk of assets but

0:22:29.600 --> 0:22:33.000
<v Speaker 2>keeping the customer relationship. It's a very important distinction.

0:22:33.280 --> 0:22:35.240
<v Speaker 1>How do you do that either you have the asset

0:22:35.320 --> 0:22:37.840
<v Speaker 1>and the credit risk. I would imagine or if you don't,

0:22:37.960 --> 0:22:40.240
<v Speaker 1>if it's a mortgage, you sell the mortgage and you're out,

0:22:40.520 --> 0:22:43.200
<v Speaker 1>how do you have How are you a little bit pregnant?

0:22:43.520 --> 0:22:47.919
<v Speaker 2>Exactly? So the solution to that are these reglatory capital solutions.

0:22:48.480 --> 0:22:52.080
<v Speaker 2>And so you're taking a portfolio of credit risk and

0:22:52.400 --> 0:22:55.520
<v Speaker 2>you're transferring that credit risk to a private credit fund

0:22:55.600 --> 0:22:59.399
<v Speaker 2>like us, but maintaining the customer relationship. And what banks

0:22:59.600 --> 0:23:04.199
<v Speaker 2>I think eminently realizes the customer relationship is how they

0:23:04.280 --> 0:23:09.199
<v Speaker 2>drive revenues. So traditional banking FX advisory services, you know,

0:23:09.720 --> 0:23:12.520
<v Speaker 2>high net worth and so without that they start to

0:23:12.560 --> 0:23:16.360
<v Speaker 2>lose their franchise. This is the product that allows them

0:23:16.359 --> 0:23:19.960
<v Speaker 2>to transfer credit risk. And for private credit firms, we

0:23:20.000 --> 0:23:22.199
<v Speaker 2>all of a sudden have access to some of their

0:23:22.280 --> 0:23:26.080
<v Speaker 2>highest quality lending. Right It's it's been the fastest growing

0:23:26.080 --> 0:23:27.080
<v Speaker 2>part of our portfolio.

0:23:27.359 --> 0:23:30.840
<v Speaker 1>So I'm trying to figure out if they're transferring the

0:23:30.880 --> 0:23:35.679
<v Speaker 1>credit risk to you, I'm assuming you're taking some sort

0:23:35.720 --> 0:23:39.000
<v Speaker 1>of contract with the bank that you're going to assume

0:23:39.000 --> 0:23:43.200
<v Speaker 1>the liability if X happens, and then you, with your expertise,

0:23:43.600 --> 0:23:48.879
<v Speaker 1>are hedging out that risk through your options or credit desk.

0:23:49.040 --> 0:23:52.479
<v Speaker 2>Yeah, and that's exactly right. But importantly, the first thing

0:23:52.520 --> 0:23:55.679
<v Speaker 2>we're doing is we're using data to really understand what

0:23:55.720 --> 0:23:58.520
<v Speaker 2>the credit risk is. And with that data, then we

0:23:58.600 --> 0:24:01.520
<v Speaker 2>can start thinking about what what the likely hedges are

0:24:01.560 --> 0:24:03.560
<v Speaker 2>for the macro risk of the portfolio.

0:24:03.720 --> 0:24:06.480
<v Speaker 1>So let's talk about that. What is your approach to data,

0:24:06.560 --> 0:24:11.359
<v Speaker 1>How do you institutionalize data management and how do you

0:24:11.720 --> 0:24:14.880
<v Speaker 1>leverage the idea of hey, we know a lot about this,

0:24:15.320 --> 0:24:16.680
<v Speaker 1>here's how we monetize it.

0:24:16.840 --> 0:24:19.280
<v Speaker 2>People talk a lot about the importance of data, but

0:24:19.359 --> 0:24:21.640
<v Speaker 2>it's usually in a different context. It's usually for these

0:24:21.720 --> 0:24:25.639
<v Speaker 2>quantitative strategies or quantitative hedge funds. For US, data is

0:24:25.680 --> 0:24:30.400
<v Speaker 2>the lifeblood of specialty finance. So for US, we use

0:24:30.520 --> 0:24:33.760
<v Speaker 2>data to solidify our assumptions. What we do with the

0:24:33.840 --> 0:24:38.360
<v Speaker 2>data is we forecast a performance of assets by matching

0:24:38.400 --> 0:24:44.360
<v Speaker 2>statistically significant characteristics. So back to the redcap examples, we've

0:24:44.359 --> 0:24:48.480
<v Speaker 2>looked at hundreds and hundreds of these types of investments

0:24:48.960 --> 0:24:52.560
<v Speaker 2>and we've taken all the data from those transactions. Now

0:24:52.640 --> 0:24:54.879
<v Speaker 2>we look at a new transaction. A bank comes to us

0:24:54.920 --> 0:24:58.520
<v Speaker 2>and says, I need to produce more regulatory capital on

0:24:58.960 --> 0:25:01.960
<v Speaker 2>this one hundred to ten thousand loans. We can take

0:25:02.000 --> 0:25:05.119
<v Speaker 2>the character risks of their polio today and out of

0:25:05.200 --> 0:25:08.359
<v Speaker 2>sample price them through history. That helps us price the

0:25:08.440 --> 0:25:11.320
<v Speaker 2>credit right and understand what risk we're taking on.

0:25:11.920 --> 0:25:16.720
<v Speaker 1>So this is really fairly sophisticated financial engineering. That is,

0:25:17.240 --> 0:25:20.199
<v Speaker 1>it sounds like it's a way for the banks to

0:25:20.320 --> 0:25:25.520
<v Speaker 1>meet the SEC requirements, the increased post financial crisis financial

0:25:25.560 --> 0:25:29.320
<v Speaker 1>reserves that they're required to have, but not have to

0:25:29.359 --> 0:25:31.320
<v Speaker 1>sell off big parts of the business and not have

0:25:31.400 --> 0:25:33.920
<v Speaker 1>to sell off the relationships you described.

0:25:34.040 --> 0:25:36.360
<v Speaker 2>I think that's exactly right. And even when you get

0:25:36.359 --> 0:25:39.920
<v Speaker 2>to what happened earlier in twenty twenty three with Credit Swiss,

0:25:40.240 --> 0:25:43.800
<v Speaker 2>that again put pressure on the banks to really think

0:25:43.840 --> 0:25:46.560
<v Speaker 2>about how they're going to hedge their credit risk. This

0:25:46.760 --> 0:25:48.080
<v Speaker 2>is their hedge to credit risk.

0:25:48.320 --> 0:25:51.040
<v Speaker 1>And then related to the way you guys work with

0:25:51.160 --> 0:25:54.440
<v Speaker 1>data management, tell us a little bit about Magnetar Labs.

0:25:54.680 --> 0:25:57.160
<v Speaker 2>Yeah, Magnetar Labs has been a great initiative for us.

0:25:57.359 --> 0:26:01.119
<v Speaker 2>It's really the institutionalization of our data. So we're trying

0:26:01.119 --> 0:26:05.600
<v Speaker 2>to produce infrastructure where we can ingest large data sets

0:26:05.680 --> 0:26:09.760
<v Speaker 2>very quickly and not only use them in specific business lines,

0:26:09.920 --> 0:26:13.240
<v Speaker 2>but use it across business lines. So I'll give you

0:26:13.280 --> 0:26:17.640
<v Speaker 2>a few examples In our merger arbitrage business, we've tracked

0:26:17.960 --> 0:26:21.679
<v Speaker 2>every detail and every characteristic of every merger and acquisition

0:26:22.080 --> 0:26:25.600
<v Speaker 2>for the last twenty plus years, and even our recent

0:26:25.640 --> 0:26:29.639
<v Speaker 2>restaurant finance business, we have itemized bills of every customer.

0:26:30.040 --> 0:26:33.359
<v Speaker 2>This is really useful data. So here's an example from

0:26:33.480 --> 0:26:35.560
<v Speaker 2>just a couple of months ago. We were looking at

0:26:35.720 --> 0:26:40.160
<v Speaker 2>an auto loan transaction and the servicer tried to overload information,

0:26:40.240 --> 0:26:43.440
<v Speaker 2>so they gave us eighty million line items of information

0:26:43.760 --> 0:26:46.159
<v Speaker 2>on purpose or I don't know if it's on purpose

0:26:46.240 --> 0:26:49.600
<v Speaker 2>or not, but eighty million line items, one hundred different files,

0:26:50.160 --> 0:26:54.680
<v Speaker 2>forty gigabytes of memory. So that's far too much for

0:26:55.320 --> 0:26:58.920
<v Speaker 2>Excel to handle or any local Python right or overload

0:26:58.960 --> 0:27:02.280
<v Speaker 2>to any one machine. But our Magtar Labs team was

0:27:02.320 --> 0:27:05.000
<v Speaker 2>able to take that in in just minutes. Right now,

0:27:05.040 --> 0:27:07.800
<v Speaker 2>we can analyze the data and then look at look

0:27:07.840 --> 0:27:10.879
<v Speaker 2>at the attributes to that investment and see if it

0:27:10.920 --> 0:27:14.160
<v Speaker 2>fits in our portfolio. We actually made the made the investment.

0:27:14.240 --> 0:27:16.360
<v Speaker 1>So so what sort of hardware using is this? Old?

0:27:16.400 --> 0:27:19.879
<v Speaker 1>Cloud based? Is this I think of like, oh, sounds

0:27:19.920 --> 0:27:22.040
<v Speaker 1>like a mainframe. I don't even know if mainframes still

0:27:22.080 --> 0:27:22.880
<v Speaker 1>exist anymore.

0:27:22.960 --> 0:27:26.320
<v Speaker 2>Everything's gone to the cloud now, right, it is pretty amazing.

0:27:26.520 --> 0:27:30.840
<v Speaker 1>And that sort of distributed computer has no ceiling, essentially

0:27:30.880 --> 0:27:35.879
<v Speaker 1>no capacity correct, infinite capacity correct. Really really interesting. So

0:27:36.040 --> 0:27:39.359
<v Speaker 1>let's talk a little bit about the status quo. I

0:27:39.480 --> 0:27:43.040
<v Speaker 1>read something where you said it was important to not

0:27:43.280 --> 0:27:46.520
<v Speaker 1>maintain the status quo. Explain what that means.

0:27:46.880 --> 0:27:50.520
<v Speaker 2>We're not efficient market theorists, but we certainly believe that

0:27:50.560 --> 0:27:53.720
<v Speaker 2>in the medium for long term the markets are efficient.

0:27:53.680 --> 0:27:55.800
<v Speaker 1>Kind of mostly eventually.

0:27:55.359 --> 0:27:59.119
<v Speaker 2>Efficient, eventually efficient. Right, So we know that what works

0:27:59.119 --> 0:28:03.520
<v Speaker 2>today at work several years forward, right, And so I'll

0:28:03.560 --> 0:28:06.639
<v Speaker 2>give you the converts example. Like you mentioned, I've been

0:28:06.640 --> 0:28:09.960
<v Speaker 2>in the convert market for thirty years now, and sometimes

0:28:10.000 --> 0:28:13.320
<v Speaker 2>converts are very cheap, you know, commal bonn arbitrage, and

0:28:13.359 --> 0:28:15.160
<v Speaker 2>when they are, we have a lot of our portfolio

0:28:15.240 --> 0:28:17.960
<v Speaker 2>in it. But today we have less than one percent

0:28:17.960 --> 0:28:21.320
<v Speaker 2>of our portfolio in the asset class. And it's just

0:28:21.400 --> 0:28:24.679
<v Speaker 2>because it's not cheap or not cheap enough versus what

0:28:24.720 --> 0:28:25.600
<v Speaker 2>we can invest in.

0:28:25.680 --> 0:28:29.480
<v Speaker 1>And is the expectation is that whatever inefficiencies were there,

0:28:29.960 --> 0:28:33.280
<v Speaker 1>markets figured it out. It's arbitraged way, and the odds

0:28:33.280 --> 0:28:36.520
<v Speaker 1>are against that ever becoming really cheap or might it

0:28:37.080 --> 0:28:38.800
<v Speaker 1>you know, become a trade again.

0:28:38.920 --> 0:28:42.040
<v Speaker 2>Yeah, some of it's supplied demand, right, and you're driven.

0:28:42.320 --> 0:28:44.480
<v Speaker 2>But I think the most important part is we're not

0:28:45.080 --> 0:28:48.360
<v Speaker 2>hiring desks of people to stay in an asset class.

0:28:48.760 --> 0:28:51.200
<v Speaker 2>That's the status quo. That's not what we're looking for.

0:28:51.520 --> 0:28:55.000
<v Speaker 2>We're looking to aggressively rotate our capital to get to

0:28:55.040 --> 0:28:58.040
<v Speaker 2>the optimal portfolio, to get to the best risk adjusted return.

0:28:58.400 --> 0:29:01.200
<v Speaker 1>So does this mean you're exploring new business areas and

0:29:01.240 --> 0:29:04.880
<v Speaker 1>strategies or is it just that you're rolling through the

0:29:05.000 --> 0:29:09.240
<v Speaker 1>various other opportunities that you've fished in before.

0:29:09.440 --> 0:29:12.920
<v Speaker 2>Yeah, it's a good question. We maintain our diligence on

0:29:12.960 --> 0:29:15.720
<v Speaker 2>other strategies, but we always have a strong research and

0:29:15.760 --> 0:29:17.240
<v Speaker 2>development pipeline. Huh.

0:29:17.720 --> 0:29:20.400
<v Speaker 1>Really interesting. So let's talk about some of the things

0:29:20.400 --> 0:29:25.680
<v Speaker 1>that are going on today. Artificial intelligence AI dominated the

0:29:26.120 --> 0:29:30.160
<v Speaker 1>twenty twenty three narrative. You made investments in core Weave,

0:29:30.240 --> 0:29:34.000
<v Speaker 1>a specialized cloud provider. Tell us a little bit about

0:29:34.000 --> 0:29:37.400
<v Speaker 1>what you're doing in that space. Is that related it

0:29:37.440 --> 0:29:40.520
<v Speaker 1>all to what we talked about earlier with Magnetar Labs.

0:29:40.960 --> 0:29:44.320
<v Speaker 2>Yeah. Core Weave is such an exciting story for Magnetar.

0:29:44.480 --> 0:29:47.240
<v Speaker 2>I can't say enough good things about it. Sometimes the

0:29:47.280 --> 0:29:50.040
<v Speaker 2>stars just align. You have the right time, the right product,

0:29:50.120 --> 0:29:54.000
<v Speaker 2>the right team. And for the listeners that don't know

0:29:54.040 --> 0:29:57.360
<v Speaker 2>who core Weave is, corev is the largest owner of

0:29:57.560 --> 0:30:02.440
<v Speaker 2>GPUs outside of the hyperscalers, Google or Amazon Web services.

0:30:02.920 --> 0:30:05.680
<v Speaker 2>They sell is high performance compute, which is sort of

0:30:05.720 --> 0:30:09.200
<v Speaker 2>the picks and shovels to enable AI. So if you

0:30:09.280 --> 0:30:13.840
<v Speaker 2>are a new AI lab, you need somebody like core

0:30:13.920 --> 0:30:17.080
<v Speaker 2>Weave to host that specialized cloud for you. Now, we

0:30:17.080 --> 0:30:20.120
<v Speaker 2>were the first institutional investor, so all the way back

0:30:20.480 --> 0:30:23.800
<v Speaker 2>in twenty twenty and at that point, core We've had

0:30:23.920 --> 0:30:26.840
<v Speaker 2>just twenty six million dollars of top line revenue, and

0:30:26.880 --> 0:30:29.400
<v Speaker 2>I think we're the first firm to really get comfortable

0:30:29.880 --> 0:30:34.160
<v Speaker 2>lending against that asset called high performance compute. Right, So

0:30:34.560 --> 0:30:37.640
<v Speaker 2>they've had explosive growth, But what we haven't been is

0:30:37.680 --> 0:30:40.560
<v Speaker 2>just a capital provider. We've really been a partner to

0:30:40.600 --> 0:30:43.280
<v Speaker 2>them within the business. Are you guys also a customer

0:30:43.320 --> 0:30:46.280
<v Speaker 2>of their We're a customer there is in Magnetar Labs,

0:30:45.920 --> 0:30:49.800
<v Speaker 2>just like you intimated before, and so we use them

0:30:49.800 --> 0:30:53.680
<v Speaker 2>for Magnetar Labs. But we have Ernie Rodgers, our COO,

0:30:53.840 --> 0:30:57.479
<v Speaker 2>sits on their board. We have daily interaction between our

0:30:57.520 --> 0:31:01.640
<v Speaker 2>management teams. This company is growing so quickly they need

0:31:01.960 --> 0:31:03.880
<v Speaker 2>all the help they can get around them, and what

0:31:03.960 --> 0:31:06.440
<v Speaker 2>we try to help with is mostly balance sheet management.

0:31:06.840 --> 0:31:11.040
<v Speaker 1>So for a firm that specializes in credit, this almost

0:31:11.080 --> 0:31:12.560
<v Speaker 1>sounds like a venture investment.

0:31:12.960 --> 0:31:15.360
<v Speaker 2>There are parts of this that are venture ish, but

0:31:15.440 --> 0:31:19.120
<v Speaker 2>what's interesting is the underlying asset, this high performance compute

0:31:19.640 --> 0:31:22.520
<v Speaker 2>is something that we can really scale with and so

0:31:22.960 --> 0:31:26.080
<v Speaker 2>I think that's been the innovation in the marketplace. So

0:31:26.120 --> 0:31:28.800
<v Speaker 2>you mentioned in twenty twenty three on the venture side,

0:31:29.080 --> 0:31:31.240
<v Speaker 2>we actually let around for them a four hundred million

0:31:31.240 --> 0:31:34.440
<v Speaker 2>dollars Series B round, but we also let a two

0:31:34.520 --> 0:31:38.800
<v Speaker 2>point three billion dollar financing on their high performance compute assets.

0:31:38.880 --> 0:31:41.600
<v Speaker 1>So it's capital and credit, it's equity and credit.

0:31:41.760 --> 0:31:45.440
<v Speaker 2>It's equity and credit, and it's a true partnership between

0:31:45.440 --> 0:31:49.320
<v Speaker 2>the firms. Towards the end of last year, in December,

0:31:49.720 --> 0:31:52.880
<v Speaker 2>the firm got valued at seven billion dollars. And to me,

0:31:52.920 --> 0:31:56.560
<v Speaker 2>it's just a start. This company just the you're just

0:31:56.560 --> 0:31:58.480
<v Speaker 2>going to see it continue to grow over time.

0:31:58.640 --> 0:32:00.640
<v Speaker 1>Well, let me know about the C round when that comes.

0:32:01.920 --> 0:32:04.480
<v Speaker 1>What do you guys, in all seriousness, what are you

0:32:04.520 --> 0:32:08.040
<v Speaker 1>guys looking for? What sort of characteristics are you looking

0:32:08.080 --> 0:32:11.000
<v Speaker 1>for when a company like this comes along. You mentioned

0:32:11.040 --> 0:32:16.400
<v Speaker 1>idiosyncratic types of investment. This sounds very specific and not

0:32:16.480 --> 0:32:17.240
<v Speaker 1>all that usual.

0:32:17.440 --> 0:32:19.920
<v Speaker 2>It is. It's very specific, but we always start with

0:32:19.960 --> 0:32:23.840
<v Speaker 2>the assets. So it's assets, it's data, and its structure. Right,

0:32:23.920 --> 0:32:27.280
<v Speaker 2>So first on the assets, we're usually focused on specialty

0:32:27.280 --> 0:32:31.360
<v Speaker 2>finance because the assets drive the performance of the company. Right.

0:32:31.480 --> 0:32:33.680
<v Speaker 2>The next thing we need is data. We can't predict

0:32:33.720 --> 0:32:37.160
<v Speaker 2>the future, so we're trying to do is use historical

0:32:37.280 --> 0:32:40.680
<v Speaker 2>data to predict how an asset reacts in different states

0:32:40.680 --> 0:32:44.200
<v Speaker 2>of the economy, and finally we use structure around that

0:32:44.560 --> 0:32:46.800
<v Speaker 2>to protect the downside of the investment itself.

0:32:47.440 --> 0:32:51.040
<v Speaker 1>Huh. Sounds really intriguing. So as long as we're talking

0:32:51.080 --> 0:32:53.720
<v Speaker 1>about twenty twenty three, we saw a lot of bank

0:32:53.760 --> 0:32:58.160
<v Speaker 1>failures last year, we saw the response to a rapid

0:32:58.200 --> 0:33:01.400
<v Speaker 1>increase in rates. You had a front row seat to

0:33:01.480 --> 0:33:05.120
<v Speaker 1>what transpired. Share what that was like, and what did

0:33:05.160 --> 0:33:07.960
<v Speaker 1>you guys see in the space. Tell us about the

0:33:08.000 --> 0:33:09.960
<v Speaker 1>opportunities that came up from those events.

0:33:10.400 --> 0:33:13.959
<v Speaker 2>Those were stressful events for the entire community, you know,

0:33:14.200 --> 0:33:17.120
<v Speaker 2>for Silicon Valley Bank in particular. I remember it was

0:33:17.200 --> 0:33:22.080
<v Speaker 2>Friday night, and the question of moral hazard appeared immediately.

0:33:22.640 --> 0:33:25.520
<v Speaker 2>So it's California based, right. It was a lot of

0:33:25.640 --> 0:33:29.560
<v Speaker 2>venture funds that had accounts there, and the questions started

0:33:29.560 --> 0:33:32.360
<v Speaker 2>coming out, is their cash safe, will they be able

0:33:32.360 --> 0:33:34.880
<v Speaker 2>to access it? If so, when will they be able

0:33:34.920 --> 0:33:37.200
<v Speaker 2>to make payroll? A lot of these smaller companies were

0:33:37.280 --> 0:33:41.000
<v Speaker 2>very worried about payroll, and in California specifically will the

0:33:41.200 --> 0:33:44.240
<v Speaker 2>border directors be liable if they couldn't make payroll? And

0:33:44.240 --> 0:33:46.000
<v Speaker 2>then they started rolling it out to what about all

0:33:46.000 --> 0:33:49.640
<v Speaker 2>the similar situated banks. So we all know that by

0:33:49.680 --> 0:33:52.640
<v Speaker 2>Monday morning, the contagion risk was too high and the

0:33:52.680 --> 0:33:56.400
<v Speaker 2>government did step in. But the opportunities really arose from that.

0:33:56.600 --> 0:33:59.160
<v Speaker 2>And so the first opportunity, which is very similar to

0:33:59.360 --> 0:34:04.120
<v Speaker 2>doing regulatory capital investments with large banks, is being a

0:34:04.240 --> 0:34:07.560
<v Speaker 2>risk capital provider to the small and regional banks. And

0:34:07.600 --> 0:34:09.200
<v Speaker 2>I think we're going to see more and more of

0:34:09.200 --> 0:34:13.440
<v Speaker 2>this overtime. It's credit firms partnering with banks where we

0:34:13.480 --> 0:34:17.200
<v Speaker 2>have access to all the diligence around their customers and

0:34:17.280 --> 0:34:20.280
<v Speaker 2>together we can jointly underwrite and make loans.

0:34:20.760 --> 0:34:24.000
<v Speaker 1>You mentioned moral hazard. Where was the moral hazard with

0:34:24.040 --> 0:34:27.560
<v Speaker 1>Silicon Valley Bank? Was it the equity investors in the

0:34:27.600 --> 0:34:32.399
<v Speaker 1>bank or was it the customers with way over the

0:34:32.480 --> 0:34:36.000
<v Speaker 1>FDIC limits? And if there isn't a quarter million or

0:34:36.040 --> 0:34:41.200
<v Speaker 1>half a million dollar ceiling, did the Federal Reserve essentially say, okay,

0:34:41.640 --> 0:34:44.840
<v Speaker 1>FDIC insurance is now unlimited? Is that the moral hazard?

0:34:45.200 --> 0:34:47.560
<v Speaker 2>We found that to be the moral hazard. Who's the

0:34:47.600 --> 0:34:49.680
<v Speaker 2>governor of how much risk a bank can take? So

0:34:49.719 --> 0:34:52.120
<v Speaker 2>the federal government came out and they said, you have

0:34:52.120 --> 0:34:54.800
<v Speaker 2>a two hundred and fifty thousand dollars limit, but people

0:34:54.840 --> 0:34:57.160
<v Speaker 2>were putting in one hundred million dollars into the account

0:34:57.320 --> 0:35:00.399
<v Speaker 2>because they got twenty five basis points more of interest, right,

0:35:00.440 --> 0:35:03.880
<v Speaker 2>So how do you actually control that? That's the moral

0:35:03.920 --> 0:35:05.920
<v Speaker 2>hazard we saw now. I think at the end of

0:35:05.960 --> 0:35:07.799
<v Speaker 2>the day, it was just too big of a risk

0:35:07.840 --> 0:35:08.600
<v Speaker 2>to the economy.

0:35:08.719 --> 0:35:12.680
<v Speaker 1>The contagion risk was Hey, there's a moral hazard question

0:35:12.960 --> 0:35:16.920
<v Speaker 1>to the depositors. But rather than stand on ceremony, let's

0:35:16.960 --> 0:35:18.640
<v Speaker 1>stop this before it spreads.

0:35:18.880 --> 0:35:19.799
<v Speaker 2>That's exactly right.

0:35:20.000 --> 0:35:23.359
<v Speaker 1>Huh, that's really that's really kind of intriguing. What else

0:35:23.400 --> 0:35:26.959
<v Speaker 1>has been the result of this rapid spike in interest rates?

0:35:26.960 --> 0:35:30.560
<v Speaker 1>What do you see in the private credit world that hey,

0:35:30.640 --> 0:35:34.640
<v Speaker 1>blame the fed. But here's what's gone off the rails.

0:35:34.880 --> 0:35:38.680
<v Speaker 2>For credit investors. Everyone thinks about fixed rate risk, right,

0:35:38.680 --> 0:35:41.600
<v Speaker 2>but that's easily hedgable, and that's a choice that that

0:35:41.680 --> 0:35:45.080
<v Speaker 2>credit investors make. So for people like magnets, are we

0:35:45.120 --> 0:35:47.600
<v Speaker 2>swap everything back to floating rate, we don't have any

0:35:47.719 --> 0:35:50.720
<v Speaker 2>edge on a macro risk like that. But the second

0:35:50.800 --> 0:35:53.719
<v Speaker 2>order effect is much much more difficult, and that's the

0:35:53.760 --> 0:35:58.400
<v Speaker 2>business impact of rates changing. So when we think about businesses,

0:35:58.440 --> 0:36:02.440
<v Speaker 2>we think about that margins change as rates go up

0:36:02.520 --> 0:36:06.600
<v Speaker 2>or down, to originations change, What about the refinancing of

0:36:06.640 --> 0:36:08.680
<v Speaker 2>their debt? I think those are the things that are

0:36:08.680 --> 0:36:12.160
<v Speaker 2>going to keep lawyers and restructuring advisors very busy for

0:36:12.200 --> 0:36:13.280
<v Speaker 2>the foreseeable future.

0:36:13.480 --> 0:36:17.640
<v Speaker 1>So given this current environment where first rates went up

0:36:17.760 --> 0:36:22.480
<v Speaker 1>further and faster than it seemed like, the consensus amongst

0:36:22.560 --> 0:36:28.200
<v Speaker 1>analysts was they stayed higher longer than people expected. There's

0:36:28.239 --> 0:36:31.000
<v Speaker 1>no recession. People have been talking about that for two years,

0:36:31.560 --> 0:36:35.480
<v Speaker 1>and the expected rate cuts I guess tied to that

0:36:35.520 --> 0:36:38.640
<v Speaker 1>recession haven't showed up yet. We were talking about March,

0:36:38.719 --> 0:36:42.160
<v Speaker 1>now we're talking about May, even June of twenty twenty four.

0:36:43.120 --> 0:36:47.280
<v Speaker 1>How does this affect how you think about putting portfolios together,

0:36:47.320 --> 0:36:50.600
<v Speaker 1>constructing portfolios. And I am very aware that you guys

0:36:50.640 --> 0:36:54.360
<v Speaker 1>aren't macro tourists. You don't play that game. But given

0:36:54.520 --> 0:36:58.759
<v Speaker 1>the volatility and the various probabilistic outcomes, how does that

0:36:58.800 --> 0:36:59.640
<v Speaker 1>impact your thinking.

0:37:00.200 --> 0:37:02.719
<v Speaker 2>It's a very good question, and for us, we think

0:37:02.760 --> 0:37:06.200
<v Speaker 2>a lot about the affordability factor. So I'll give you

0:37:06.200 --> 0:37:10.120
<v Speaker 2>two examples at both extremes. So we have a partial

0:37:10.160 --> 0:37:13.640
<v Speaker 2>ownership in an auto loan business in Ireland, and so

0:37:13.719 --> 0:37:16.759
<v Speaker 2>when rates are at zero, we're loaning to consumers. It's

0:37:16.760 --> 0:37:19.160
<v Speaker 2>somewhere between five and a half and six percent, and

0:37:19.200 --> 0:37:22.520
<v Speaker 2>we're gaining market share rapidly. All of a sudden, risk

0:37:22.560 --> 0:37:25.920
<v Speaker 2>free rate goes to five percent, that equivalent loan we're

0:37:25.920 --> 0:37:28.960
<v Speaker 2>gonna have to charge consumers eleven percent. It's just it's

0:37:28.960 --> 0:37:30.440
<v Speaker 2>simply unaffordable.

0:37:29.960 --> 0:37:31.759
<v Speaker 1>Right, different calculus, different.

0:37:31.440 --> 0:37:34.440
<v Speaker 2>Calculus, And so we have a decision to make. We

0:37:34.480 --> 0:37:37.560
<v Speaker 2>can stay at eleven percent, keep the same margin but

0:37:37.719 --> 0:37:41.920
<v Speaker 2>reduce origination, or we can take our margin down and

0:37:41.960 --> 0:37:44.360
<v Speaker 2>try to keep market share. Either way, the business is

0:37:44.400 --> 0:37:47.600
<v Speaker 2>worth a lot less. That has a lot of affordability

0:37:47.640 --> 0:37:50.200
<v Speaker 2>factor effect to it. On the other end of the

0:37:50.239 --> 0:37:53.680
<v Speaker 2>stream is our music royalties business. So in music royalties,

0:37:54.280 --> 0:37:57.640
<v Speaker 2>you know, the simplification is you get some small part

0:37:57.680 --> 0:38:02.200
<v Speaker 2>of worldwide streaming revenue. So it takes Spotify. Spotify raise

0:38:02.320 --> 0:38:05.920
<v Speaker 2>rates recently and they had no customer churn, so some

0:38:06.000 --> 0:38:09.080
<v Speaker 2>percentage of that rate went directly to the royalty holder.

0:38:09.480 --> 0:38:13.680
<v Speaker 2>There was very little affordability factor. So we're veering away

0:38:13.680 --> 0:38:17.640
<v Speaker 2>from things that the business impact on affordability is high,

0:38:18.080 --> 0:38:20.160
<v Speaker 2>and we're investing in things where it's lower.

0:38:20.480 --> 0:38:22.680
<v Speaker 1>Private credit seems to be getting a lot of attention

0:38:22.800 --> 0:38:24.279
<v Speaker 1>these days. Why is that.

0:38:24.480 --> 0:38:26.560
<v Speaker 2>If you would have asked me going into the global

0:38:26.560 --> 0:38:29.359
<v Speaker 2>financial crisis, I know we keep going back fifteen years now,

0:38:29.480 --> 0:38:31.400
<v Speaker 2>I would have said the banks had it all right.

0:38:31.440 --> 0:38:34.520
<v Speaker 2>They controlled origination of all of the different asset classes,

0:38:34.600 --> 0:38:38.000
<v Speaker 2>especially finance and lending, so whether its credit cards or

0:38:38.040 --> 0:38:43.040
<v Speaker 2>mortgages or loans to their customers. But after as the

0:38:43.040 --> 0:38:46.839
<v Speaker 2>financial crisis happened, there was a spotlight flashed on their

0:38:46.880 --> 0:38:49.640
<v Speaker 2>balance sheet. They just had too much risk and so

0:38:49.680 --> 0:38:51.960
<v Speaker 2>the regulators came in to reduce that risk. So the

0:38:52.040 --> 0:38:56.240
<v Speaker 2>simple question is that private credit came in and stepped

0:38:56.239 --> 0:39:00.719
<v Speaker 2>in the shoes of banks and really took markets. But

0:39:01.080 --> 0:39:04.280
<v Speaker 2>this scale was much larger than anyone could have anticipated.

0:39:04.520 --> 0:39:07.239
<v Speaker 2>But for me, what I think about a lot is

0:39:07.280 --> 0:39:11.960
<v Speaker 2>the more profound effect is the talent transfer. The talent

0:39:12.040 --> 0:39:15.239
<v Speaker 2>transfer from the banks that went to the credit providers,

0:39:15.320 --> 0:39:18.759
<v Speaker 2>the private credit providers that set the stage for this

0:39:18.960 --> 0:39:21.320
<v Speaker 2>mass growth in private credit.

0:39:21.520 --> 0:39:24.279
<v Speaker 1>So let's talk about talent a little bit. One of

0:39:24.320 --> 0:39:27.680
<v Speaker 1>the things I know your firm is proud of is

0:39:28.160 --> 0:39:30.600
<v Speaker 1>more than half of your workforce has been with the

0:39:30.600 --> 0:39:34.480
<v Speaker 1>firm for five years or longer. So first, I'm assuming

0:39:34.520 --> 0:39:37.880
<v Speaker 1>that's not typical in your space, and second I have

0:39:37.960 --> 0:39:41.440
<v Speaker 1>to ask what contributed to that sort of retention.

0:39:42.080 --> 0:39:44.680
<v Speaker 2>I'm very proud. I think we're very proud of that fact,

0:39:44.680 --> 0:39:47.880
<v Speaker 2>and I think it is very atypical. But the credit

0:39:47.960 --> 0:39:51.600
<v Speaker 2>really goes to so many people at Magnetar. You know,

0:39:51.680 --> 0:39:55.719
<v Speaker 2>we're a global firm, but I think with a Midwestern ethos,

0:39:56.120 --> 0:39:59.680
<v Speaker 2>so it's work hard, stay humble, be a good teammate,

0:40:00.080 --> 0:40:04.560
<v Speaker 2>good person, And I think if we can consistently demonstrate

0:40:04.600 --> 0:40:07.799
<v Speaker 2>those qualities will attract people who value them. And it's

0:40:08.120 --> 0:40:11.040
<v Speaker 2>a virtuous circle. And what's incredible about the firm is

0:40:11.080 --> 0:40:13.279
<v Speaker 2>when we get when we're focused, how much we can

0:40:13.320 --> 0:40:15.839
<v Speaker 2>get done. So I'll give you a simple example. We

0:40:15.920 --> 0:40:19.960
<v Speaker 2>started a summer internship program several years ago, and we

0:40:20.000 --> 0:40:22.960
<v Speaker 2>started with two interns and we built the program around them,

0:40:23.239 --> 0:40:26.759
<v Speaker 2>and this last summer we had sixty interns for a

0:40:26.760 --> 0:40:30.399
<v Speaker 2>two hundred person organization. You know, it's pretty humbling when

0:40:30.440 --> 0:40:33.440
<v Speaker 2>you think about all the exceptional people around Magnetar and

0:40:33.440 --> 0:40:34.600
<v Speaker 2>how much we can get done.

0:40:34.760 --> 0:40:37.200
<v Speaker 1>So one of the things we've been hearing a lot

0:40:37.239 --> 0:40:41.760
<v Speaker 1>about as big companies try and get their staff back

0:40:41.800 --> 0:40:45.840
<v Speaker 1>in the office five days a week is corporate culture.

0:40:46.480 --> 0:40:50.800
<v Speaker 1>Tell us a little bit about what is differentiating Magnetar

0:40:51.360 --> 0:40:57.040
<v Speaker 1>from a cultural perspective. You know, starting with Evanston, Illinois,

0:40:57.080 --> 0:40:59.960
<v Speaker 1>not a lot of private credit shops in the neighborho

0:41:01.000 --> 0:41:01.720
<v Speaker 1>that's true.

0:41:01.880 --> 0:41:04.640
<v Speaker 2>You know, first principles, it's always about integrity. But I

0:41:04.680 --> 0:41:09.759
<v Speaker 2>think for most tenured firms integrity is high. But for us,

0:41:09.800 --> 0:41:13.160
<v Speaker 2>the north star is always creating the best portfolios to

0:41:13.160 --> 0:41:17.319
<v Speaker 2>deliver to our clients. And we really have two foundational

0:41:17.360 --> 0:41:20.600
<v Speaker 2>points there. One is we run a very flat organization

0:41:21.120 --> 0:41:23.480
<v Speaker 2>and secondly, we've thought a lot about alignment. So on

0:41:23.520 --> 0:41:27.000
<v Speaker 2>the flat organization, it doesn't matter who has the right answer.

0:41:27.360 --> 0:41:29.960
<v Speaker 2>We know we're trying to reach the right answer. So

0:41:30.120 --> 0:41:33.360
<v Speaker 2>I'll take our investment committees as an example. We have

0:41:33.440 --> 0:41:37.120
<v Speaker 2>bi weekly investment committees. And it's not the top two

0:41:37.239 --> 0:41:39.600
<v Speaker 2>or three people that sit on the investment committee. We

0:41:39.640 --> 0:41:42.759
<v Speaker 2>have one hundred and twenty people in that meeting, you know,

0:41:43.160 --> 0:41:45.840
<v Speaker 2>every two weeks. Wow, And we really want people to

0:41:45.920 --> 0:41:48.560
<v Speaker 2>voice opinions, right, and that's how we're going to get

0:41:48.600 --> 0:41:50.560
<v Speaker 2>to the best answer. You know, we talk about it

0:41:50.600 --> 0:41:53.879
<v Speaker 2>internally a lot. We're trying to manage investments by consensus,

0:41:54.239 --> 0:41:58.200
<v Speaker 2>and so especially in private credit, if someone doesn't like something,

0:41:58.200 --> 0:42:00.360
<v Speaker 2>we can change it. We can change you know, what

0:42:00.400 --> 0:42:03.440
<v Speaker 2>a structure looks like. And so we'll get to something

0:42:03.760 --> 0:42:07.600
<v Speaker 2>where we actually get consensus, you know. On the alignment point.

0:42:08.120 --> 0:42:12.240
<v Speaker 2>It really goes back to not giving individual capital allocations,

0:42:12.480 --> 0:42:16.040
<v Speaker 2>but incentivizing people to create the best portfolio. So you

0:42:16.040 --> 0:42:19.120
<v Speaker 2>asked about pretention before. I think the reason why people

0:42:19.440 --> 0:42:22.840
<v Speaker 2>stay at Magnetar long term is because they believe in

0:42:22.880 --> 0:42:25.040
<v Speaker 2>these philosophies and they believe if we get to the

0:42:25.080 --> 0:42:28.240
<v Speaker 2>right portfolio that everyone wins in the long term.

0:42:28.440 --> 0:42:31.480
<v Speaker 1>Huh. Really very interesting, So we only have you for

0:42:31.920 --> 0:42:33.799
<v Speaker 1>a limited amount of time. Let me jump to my

0:42:33.960 --> 0:42:37.680
<v Speaker 1>favorite questions that I ask all of my guests starting

0:42:37.719 --> 0:42:40.640
<v Speaker 1>with tell us what you've been streaming these days? What's

0:42:40.640 --> 0:42:45.800
<v Speaker 1>been keeping you entertained? Either video or audio, Netflix or podcast?

0:42:45.840 --> 0:42:47.280
<v Speaker 1>What's keeping you entertained?

0:42:47.480 --> 0:42:49.320
<v Speaker 2>Yeah, I think this will be different than most of

0:42:49.320 --> 0:42:51.200
<v Speaker 2>the people have stated on this show. But for me,

0:42:51.280 --> 0:42:51.840
<v Speaker 2>it's been.

0:42:51.840 --> 0:42:55.120
<v Speaker 1>Flow sports, flow sports.

0:42:54.680 --> 0:42:57.359
<v Speaker 2>Flow sports. So I have my older son is in

0:42:57.400 --> 0:43:00.680
<v Speaker 2>between high school and college right now, and he's playing

0:43:00.719 --> 0:43:03.640
<v Speaker 2>hockey and juniors for a year, and so all of

0:43:03.680 --> 0:43:07.000
<v Speaker 2>his games are on flow Sports. So Christy and my

0:43:07.080 --> 0:43:09.960
<v Speaker 2>son Jake and I sit around and watch every game together.

0:43:10.120 --> 0:43:11.959
<v Speaker 1>What does he what positions does he play?

0:43:12.160 --> 0:43:15.600
<v Speaker 2>He plays defense. It's been a lot of fun flow sports.

0:43:15.680 --> 0:43:18.440
<v Speaker 1>Is that like a YouTube channel on internet channel? How

0:43:18.440 --> 0:43:19.000
<v Speaker 1>do you find that?

0:43:19.680 --> 0:43:21.920
<v Speaker 2>We pull it up on Apple TV or on our phone,

0:43:22.000 --> 0:43:25.800
<v Speaker 2>and yeah, it's been great for a lot of youth sports.

0:43:26.040 --> 0:43:26.880
<v Speaker 1>Huh. Interesting.

0:43:26.920 --> 0:43:30.000
<v Speaker 2>And then on the podcast side, this podcast aside on.

0:43:29.960 --> 0:43:31.879
<v Speaker 1>Here you never have to bring this podcast up.

0:43:31.760 --> 0:43:35.120
<v Speaker 2>Of course. So I listened to one by Larry Burnsteed

0:43:35.200 --> 0:43:39.240
<v Speaker 2>what Happens Next, and he's been doing it since COVID,

0:43:39.320 --> 0:43:43.440
<v Speaker 2>and it's sort of six minutes of really relevant topics

0:43:43.440 --> 0:43:44.520
<v Speaker 2>that come out every weekend.

0:43:45.239 --> 0:43:47.560
<v Speaker 1>What happens next. I'm going to check that out. I

0:43:47.600 --> 0:43:50.799
<v Speaker 1>love the idea of these having done long form for

0:43:50.880 --> 0:43:54.000
<v Speaker 1>a decade, I love the idea of five, ten, twelve

0:43:54.040 --> 0:43:57.359
<v Speaker 1>minutes and you're done, And there's something very appealing about that.

0:43:58.480 --> 0:44:02.080
<v Speaker 1>Let's talk about your mentors who helped to shape your career.

0:44:02.320 --> 0:44:04.160
<v Speaker 2>You know, it always starts with their parents, and then

0:44:04.520 --> 0:44:07.920
<v Speaker 2>you know football coaches like like Larry Kimbaum. But I

0:44:08.000 --> 0:44:10.680
<v Speaker 2>mentioned Dave Bunning before. I think most people would say,

0:44:10.920 --> 0:44:13.479
<v Speaker 2>you know, I'm a product of his teachings over time.

0:44:13.840 --> 0:44:16.800
<v Speaker 1>Huh. Interesting. How about books? What are some of your favorites?

0:44:16.880 --> 0:44:18.040
<v Speaker 1>What are you reading right now?

0:44:18.239 --> 0:44:20.359
<v Speaker 2>You know I always like Michael Lewis books. We had

0:44:20.440 --> 0:44:23.600
<v Speaker 2>him at one of our off sites a few years ago.

0:44:24.000 --> 0:44:26.120
<v Speaker 2>You ever remember this book is one of my favorites.

0:44:26.160 --> 0:44:28.960
<v Speaker 2>You know, Memos from the Chairman by Alan Greenberg. Sure,

0:44:29.360 --> 0:44:29.759
<v Speaker 2>that was a.

0:44:29.680 --> 0:44:32.880
<v Speaker 1>Great bay Greenberg Greenberg correct.

0:44:32.880 --> 0:44:34.759
<v Speaker 2>And what was so interesting about his book is, you

0:44:34.760 --> 0:44:37.160
<v Speaker 2>know he's running the firm, but he's really in the

0:44:37.280 --> 0:44:38.960
<v Speaker 2>nuche of every detail.

0:44:39.560 --> 0:44:43.920
<v Speaker 1>It was very interesting, including the paper clips recycling.

0:44:43.440 --> 0:44:45.040
<v Speaker 2>Between every expense.

0:44:45.080 --> 0:44:48.200
<v Speaker 1>So let me interrupt you one second. Say I was

0:44:48.320 --> 0:44:51.799
<v Speaker 1>at a lunch just with you know, three people at

0:44:51.800 --> 0:44:54.880
<v Speaker 1>a table and he came in and sat like a

0:44:54.960 --> 0:44:58.319
<v Speaker 1>table or two over and the whole meal, I mean

0:44:58.360 --> 0:45:00.560
<v Speaker 1>this was later in his life. The whole meal was

0:45:00.600 --> 0:45:04.439
<v Speaker 1>a parade of people coming in to genuflect in front

0:45:04.440 --> 0:45:08.040
<v Speaker 1>of him and just pay their respects. It was like

0:45:08.120 --> 0:45:12.040
<v Speaker 1>the Pope was having lunch. I don't know how well

0:45:12.040 --> 0:45:15.399
<v Speaker 1>you know of him, and the book certainly is kind

0:45:15.440 --> 0:45:18.040
<v Speaker 1>of you know, you don't get a sense of how

0:45:18.080 --> 0:45:21.239
<v Speaker 1>other people perceived him, but fascinating guy.

0:45:21.440 --> 0:45:23.319
<v Speaker 2>I met him when he was at bear Stearns and

0:45:23.640 --> 0:45:27.200
<v Speaker 2>I felt the same way. He was a special person.

0:45:27.719 --> 0:45:29.640
<v Speaker 1>What other books are you reading? Anything else you want

0:45:29.680 --> 0:45:30.000
<v Speaker 1>to mention?

0:45:30.600 --> 0:45:32.879
<v Speaker 2>So my colleague and the head of our London ops,

0:45:32.880 --> 0:45:36.840
<v Speaker 2>Alan Schafferan, recommended the book The Missing Billionaires and the

0:45:36.880 --> 0:45:39.239
<v Speaker 2>reason that I just started. But the reason it's interesting

0:45:39.320 --> 0:45:44.160
<v Speaker 2>is it's very focused on asset allocation and mistakes and

0:45:44.239 --> 0:45:47.799
<v Speaker 2>asset allocation and how much that can cost a portfolio

0:45:47.800 --> 0:45:50.160
<v Speaker 2>over time. So it has a lot of parallels to

0:45:50.200 --> 0:45:52.720
<v Speaker 2>the way we think about asset allocation and magnets are.

0:45:52.719 --> 0:45:56.640
<v Speaker 1>Huh really interesting. Our final two questions, what sort of

0:45:56.680 --> 0:45:59.680
<v Speaker 1>advice would you give a recent college grad interest in

0:45:59.680 --> 0:46:04.680
<v Speaker 1>the career in either private creditor alts, fixed income, any

0:46:04.680 --> 0:46:06.120
<v Speaker 1>of the areas you specialized in.

0:46:06.800 --> 0:46:08.520
<v Speaker 2>It's what we think about for the firm. I know

0:46:08.840 --> 0:46:12.840
<v Speaker 2>what I tell my kids would be, it's people on platform.

0:46:13.160 --> 0:46:16.719
<v Speaker 2>You need to be around good integrist people that are

0:46:16.880 --> 0:46:20.760
<v Speaker 2>great mentors, and the platform needs to be growing over time,

0:46:21.000 --> 0:46:23.160
<v Speaker 2>so each seat should be more more than the person

0:46:23.200 --> 0:46:23.400
<v Speaker 2>in it.

0:46:23.840 --> 0:46:26.920
<v Speaker 1>Huh. Interesting. And our final question, what do you know

0:46:26.960 --> 0:46:30.640
<v Speaker 1>about the world of investing, of credit of risk management

0:46:31.480 --> 0:46:33.479
<v Speaker 1>today that you wish you knew when you were first

0:46:33.800 --> 0:46:35.640
<v Speaker 1>getting started thirty years or so ago.

0:46:35.960 --> 0:46:38.359
<v Speaker 2>Yeah, this may be an atypical answer, but I think

0:46:38.400 --> 0:46:40.719
<v Speaker 2>about luck versus skill a lot more than I ever

0:46:40.760 --> 0:46:43.680
<v Speaker 2>did before. If you make a decision today and don't

0:46:43.680 --> 0:46:46.080
<v Speaker 2>have an outcome for ten years, you don't really know

0:46:46.160 --> 0:46:48.359
<v Speaker 2>if you were good at it or not right, whether

0:46:48.400 --> 0:46:50.680
<v Speaker 2>you won or lost. If you're able to have a

0:46:50.800 --> 0:46:54.640
<v Speaker 2>much faster feedback loop now, you can really hone your

0:46:54.680 --> 0:46:59.840
<v Speaker 2>skills and understand whether you're making good decisions or bad decisions.

0:47:00.360 --> 0:47:02.640
<v Speaker 2>And so I think for me, and as we look

0:47:02.640 --> 0:47:05.560
<v Speaker 2>at people's track records, we really try to think about

0:47:05.840 --> 0:47:08.960
<v Speaker 2>how often do they get to make the same decision

0:47:09.480 --> 0:47:12.440
<v Speaker 2>and what's the process around that decision and how different

0:47:12.480 --> 0:47:13.160
<v Speaker 2>is it over time?

0:47:13.800 --> 0:47:16.279
<v Speaker 1>Very interesting. I have a book for you, but I'm

0:47:16.280 --> 0:47:19.799
<v Speaker 1>gonna bet you've already read it, Michael Mobison's book I

0:47:19.840 --> 0:47:24.239
<v Speaker 1>have not Please, Separating skill from luck in investing, business

0:47:24.239 --> 0:47:27.080
<v Speaker 1>and sports like that is right up your al that

0:47:27.239 --> 0:47:31.080
<v Speaker 1>is thank you, and he's a fascinating author and really

0:47:31.120 --> 0:47:33.839
<v Speaker 1>a fascinating book. I would bet you you would appreciate it.

0:47:34.080 --> 0:47:34.440
<v Speaker 2>Excellent.

0:47:34.800 --> 0:47:37.200
<v Speaker 1>Thank you David for being so generous with your time.

0:47:37.440 --> 0:47:41.040
<v Speaker 1>We have been speaking with David Snyderman. He is the

0:47:41.080 --> 0:47:44.560
<v Speaker 1>global head of Alternative credit and fixed income and managing

0:47:44.600 --> 0:47:48.960
<v Speaker 1>partner at Magnetar, a fifteen billion dollar multi strategy, multi

0:47:49.040 --> 0:47:53.920
<v Speaker 1>product alternative investment management firm. If you enjoy this conversation,

0:47:54.080 --> 0:47:56.520
<v Speaker 1>well check out any of the previous five hundred or

0:47:56.560 --> 0:48:02.120
<v Speaker 1>so we've had. You can find those ato Spotify, YouTube, Bloomberg,

0:48:02.280 --> 0:48:06.399
<v Speaker 1>wherever you find your favorite podcast. Be sure and check

0:48:06.400 --> 0:48:10.200
<v Speaker 1>out my new podcast at the Money, ten minutes each

0:48:10.239 --> 0:48:14.480
<v Speaker 1>week with an expert discussing a topic that's relevant to

0:48:14.719 --> 0:48:17.360
<v Speaker 1>you and your money. I would be remiss if I

0:48:17.400 --> 0:48:19.600
<v Speaker 1>did not thank the crack team that helps me put

0:48:19.640 --> 0:48:24.719
<v Speaker 1>these conversations together each week. Sarah Livesey is my audio engineer.

0:48:25.000 --> 0:48:28.440
<v Speaker 1>Attika val Brun is my project manager. Anna Luke is

0:48:28.440 --> 0:48:32.200
<v Speaker 1>my producer. Sean Russo is my head of research. Sage

0:48:32.200 --> 0:48:36.680
<v Speaker 1>Bauman is our head of podcasts. I'm Barry Ritolfs. You've

0:48:36.719 --> 0:48:40.720
<v Speaker 1>been listening to Master's in Business on Bloomberg Radio