Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Master's in
Speaker 1: Business with Barry rid Holds on Bloomberg Radio. This week
Speaker 1: on the podcast, I have a fascinating and extra special guest.
Speaker 1: David Sneinermann has put together an incredible career in fixed income,
Speaker 1: alternative credit, and really just an amazing way of looking
Speaker 1: at risk and trade structure and how to figure out
Speaker 1: probabilistic potential outcomes rather than playing the usual forecasting and
Speaker 1: macro tourist game. He is global head of all credit
Speaker 1: and fixed income and managing partner at Magnetar. They have
Speaker 1: an incredible track record. They've put together a string of
Speaker 1: j huge returns. They are not like any other funds
Speaker 1: that you'll hear me talk about. Their pre unique and
Speaker 1: specific in the world. I found this conversation to be fascinating,
Speaker 1: and even though we kind of wander off into the
Speaker 1: weeds of private credit, it's so informative and so interesting.
Speaker 1: I think you'll you'll really enjoy it. With no further
Speaker 1: ado my discussion with Magnetars David Snyderman.
Speaker 2: Thank you very much for having me, Barry. I really
Speaker 2: appreciate it and I'm looking forward to our conversation.
Speaker 1: I am. Also, I'm very familiar with Magnetar and it's history.
Speaker 1: It's really a fascinating firm in so many ways. Let's start, though,
Speaker 1: talking a little bit about your background. You grow up
Speaker 1: in suburban New Jersey and then you head to Saint
Speaker 1: Louis for college. Tell us a little bit about where
Speaker 1: you went, what you studied.
Speaker 2: Sure, I grew up in Freehold, New Jersey, so most
Speaker 2: people a know home of Bruce Springsteen. You know, my
Speaker 2: focus coming out of high school was playing football. I
Speaker 2: want to play football at the highest level I could.
Speaker 1: You are not much bigger than me. What made you
Speaker 1: think you could play on the gridiron?
Speaker 2: I don't know. I thought I could, but I definitely
Speaker 2: thought I could at the time, and so I wanted
Speaker 2: to play at the highest level possible. My parents were
Speaker 2: much more focused on academic institution and so wash you
Speaker 2: sort of met both criteria.
Speaker 1: Did you play born college?
Speaker 2: I did all four years. It was a lot of fun.
Speaker 1: What position did you play?
Speaker 2: I played strong safety, and yeah Division three is the
Speaker 2: highest level I could play up, but I loved it.
Speaker 1: Right, So safety you have to be pretty fast, and.
Speaker 2: That was the issue.
Speaker 1: So but for that you would have gone pro there
Speaker 1: you go. What did you study at Washoe.
Speaker 2: Washoo back then? Was it was a great They had
Speaker 2: a great medical school and they still do today. And
Speaker 2: in my family, being a doctor was the highest level
Speaker 2: of achievement. So I had an older sister starting medical school,
Speaker 2: and I had a relative that is actually a dean
Speaker 2: of Duke Medical School. So I had this nice glide
Speaker 2: path to be a doctor.
Speaker 1: Right.
Speaker 2: So I started off pre med, but I didn't end
Speaker 2: pre med. I found out quickly that's not what I
Speaker 2: wanted to do. The hardest part is telling my parents
Speaker 2: and especially my grandparents, you know, no more pre med.
Speaker 2: So I switched to be an economics major. I graduated
Speaker 2: economics with a lot of courseworking accounting and finance.
Speaker 1: Huh. Interesting. So you come out of college, you go
Speaker 1: to Price Waterhouse Cooper and then Coke Industries, where you're
Speaker 1: focusing on convertible securities, merger arm and special situations. How
Speaker 1: do you get from medical school to that? What was
Speaker 1: the career plan?
Speaker 2: Yeah? My path was certainly non traditional. I didn't go
Speaker 2: to one of the East Coast Ivy League schools, knowing
Speaker 2: I wanted to go to Wall Street. I didn't even
Speaker 2: know what Wall Street. Working on Wall Street meant at
Speaker 2: the time, So for me, it was much more around,
Speaker 2: you know, being around fantastic people and really taking advantage
Speaker 2: of opportunities. It's like you said, I started a price
Speaker 2: waterhouse and I went through a one year rotation there.
Speaker 2: So it started with audit, so I saw many companies,
Speaker 2: then tax and financial services, so it's a great training
Speaker 2: ground to understand how, you know, theoretics went into the
Speaker 2: practical business. From there, I went to Coke Industries and
Speaker 2: I had a great experience of Coke. I was there
Speaker 2: five years. I worked in three different places for them.
Speaker 2: So I started in Houston, Texas, and I worked on
Speaker 2: their natural gas business. Then this opportunity came up in Switzerland.
Speaker 2: So it's a thirteen thousand person company and there were
Speaker 2: going to be five people in Switzerland to manage about
Speaker 2: several hundred million dollars more in cash optimization. So I
Speaker 2: had the opportunity to be a junior person there. I'd
Speaker 2: never left the US before, so I was sat in
Speaker 2: the middle of Switzerland and sat there for two years
Speaker 2: and worked in that business, and then went to Wichita, Kansas,
Speaker 2: which tak Kansas was the home office and there were
Speaker 2: sort of a dozen of us, very simply situated, you know,
Speaker 2: all young and hungry. But they had great management at Coke.
Speaker 2: They really encouraged us to start businesses. So I remember
Speaker 2: writing the merger our business plan there and then implementing
Speaker 2: the business. So a quick fun fact about Coke at
Speaker 2: Magnetar today we have three of my prior bosses that
Speaker 2: you know from Coke, so it's pretty neat. But to
Speaker 2: answer your question, like, I had a lot of broad
Speaker 2: experiences by the time I was in my mid twenties,
Speaker 2: but no real direction on what my career was going
Speaker 2: to be.
Speaker 1: Where in Switzerland was a Geneva somewhere.
Speaker 2: Else it was Frebourg, So a town twenty minutes from
Speaker 2: Burnho was a tax free canton.
Speaker 1: Uh huh.
Speaker 2: So I was in a town that spoke, you know,
Speaker 2: half French and half German and I spoke English.
Speaker 1: So there you go. But no taxes, no income.
Speaker 2: Taxes, no income taxes for the company.
Speaker 1: And then Coke Industries. I don't think a lot of
Speaker 1: people realized one of the largest private companies in the
Speaker 1: United States and maybe even the largest. They're giant energy powerhouse.
Speaker 1: What else does Coke do?
Speaker 2: Yeah, so when I was there, that had thirteen thousand people,
Speaker 2: and that was before they bought Georgia Pacific. I think
Speaker 2: now it's probably thirty five thousand people. Immens It's immense,
Speaker 2: and so they have many, many different business lines there.
Speaker 2: For me, I sat mostly in their internal really an
Speaker 2: internal hedge fund, so it was their excess cash. They
Speaker 2: borrowed money at live bid at the time, so they
Speaker 2: borrowed money very cheaply, and our job was to make
Speaker 2: money on that money.
Speaker 1: So you end up as head of global credit and
Speaker 1: senior managing director at Citadel Investment Group. Was that right
Speaker 1: from Coke Industries? That was seven years at Citadel. That's
Speaker 1: supposed to be a tough shop.
Speaker 2: To work at.
Speaker 1: What was your experience like there?
Speaker 2: It was a perfect job for me at the time,
Speaker 2: So I always thought I worked at a high level
Speaker 2: of intensity right right. But when I got there, I
Speaker 2: realized I was one of many. But I had the
Speaker 2: opportunity to work for gentleman Dave Bunning. He was one
Speaker 2: of the original few handful of people that started at Citadel.
Speaker 2: And Dave was fantastic in so many different ways. A
Speaker 2: great leader, a great investor, but really a great person
Speaker 2: and he took me under his wing there. It was
Speaker 2: a lot of work, but a lot of formidable lessons
Speaker 2: came out of my time there. Right. So the first
Speaker 2: one that I think about is the investing business itself
Speaker 2: is an operating business. So we really have to understand
Speaker 2: what we're going to invest in. Value everything in the universe, rank,
Speaker 2: order them, and then only can we put together portfolios.
Speaker 2: And the second, and this is very credit specific, was
Speaker 2: when you own a credit portfolio, your short volatility. So
Speaker 2: what that simply means is if you have a dislocation,
Speaker 2: you're gonna lose a lot of money, uh huh. And
Speaker 2: so to put together credit portfolios, we have to find
Speaker 2: hedges that offset that short volatility. So really learning the
Speaker 2: value of options right was probably the biggest lesson coming
Speaker 2: out of Citadel.
Speaker 1: So I want to rephrase that for some of the
Speaker 1: less option involve savvy members of the audience. When we
Speaker 1: buy fixed income, we just wanted to be steady and
Speaker 1: pay a divinend and not swing up and down. And
Speaker 1: if it does swing up and down, the odds are
Speaker 1: it's not in your favor. That volatility you can look
Speaker 1: at as an insurance product. If the volatility goes up, Hey,
Speaker 1: we can make a bet that will offset the draw
Speaker 1: down in the bonds.
Speaker 2: That's exactly right, all right.
Speaker 1: And you you at Citadel, you were running a convertible
Speaker 1: bond and credit trading desk. Is that what you eventually
Speaker 1: ended up as head of Global Credit?
Speaker 2: That's correct. I started there on the convertible bond arbitrage desk,
Speaker 2: and then we started capital structure arbitrage, which meant we were,
Speaker 2: you know, buying or selling credit and against that buying
Speaker 2: and selling equities. And finally we consolidated that together and
Speaker 2: I ran that business for Ken and Citadel.
Speaker 1: And some of the folks Ken being Ken Griffin. When
Speaker 1: people say Citadel is a lot of work, you don't
Speaker 1: realize there's a whole other gear you have to move
Speaker 1: into and its next level was that your experience.
Speaker 2: It was and for me, I actually loved that part
Speaker 2: of Citadel. It was sixteen hour days and it was
Speaker 2: six or seven days a week, but you really got
Speaker 2: to learn the financial markets there.
Speaker 1: Huh. Interesting. So Magnetar launches in two thousand and five
Speaker 1: with some capital and you joined. You you weren't one
Speaker 1: of the original founders, but you joined not long afterwards.
Speaker 2: That's correct. So Alec Litowitz and Ross Lazar founded the firm,
Speaker 2: and you know I did join the day we launched
Speaker 2: our main fund. Now, for me, Alec was a known quantity.
Speaker 2: He ran equities at Citadel with Dave Bunning, my prior
Speaker 2: boss there, and then when I moved up into Dave's spot,
Speaker 2: Alec moved out and they started and he spent I
Speaker 2: think two years in a noncompete and then started Magnetar.
Speaker 2: Him and Ross Lazar co founded the firm, and they
Speaker 2: had a vision to co found the firm, and I
Speaker 2: bought into the vision immediately, and Alec always did a
Speaker 2: great job of laying it out right. And first was
Speaker 2: we're going to have a culture of collaboration. So back then,
Speaker 2: you probably remember in two thousand and five, you know,
Speaker 2: there were a lot of what they call pod shops,
Speaker 2: so they give individual asset allocation to people and they'd
Speaker 2: go invest their money. This was going to be a
Speaker 2: multi strategy vehicle, so we'd have credit, we'd have equities,
Speaker 2: we'd have hedge fund strategies, but with no silos. So
Speaker 2: we're going to work together and put best opportunities into
Speaker 2: the portfolio.
Speaker 1: So you have people from Coke Industries with you. You
Speaker 1: have people from Citadel. Did those prior employees have a
Speaker 1: piece of you guys? Did they seed you, did they
Speaker 1: invest you? Or was it just a clean break and
Speaker 1: we're off on our own.
Speaker 2: It was a clean break. And Ross Lazar came from
Speaker 2: the fund of Funds World and he was the primary
Speaker 2: money raiser and business builder there and so he did
Speaker 2: a fantastic job. I think were the largest launch of
Speaker 2: two thousand and five with about two point three billion dollars.
Speaker 1: How long did it take you to get up and running?
Speaker 1: Were you felt, oh, this is really all the pieces
Speaker 1: are in place.
Speaker 2: Yeah, it's a good question and funny funny you asked
Speaker 2: that question because we talk about it often around Magnetar.
Speaker 2: You know, I started and I hired three or four
Speaker 2: people that I started with, and Ross Lazar, right, and
Speaker 2: again he's a he's my partner, my close friend, and
Speaker 2: a great business builder. Two weeks into it, he came
Speaker 2: to me and said, what's the first investment, Like, when
Speaker 2: are you going to start investing? And I said to Ross, look,
Speaker 2: we were gonna build the systems in infrastructure to prepare
Speaker 2: to invest first, and.
Speaker 1: I need a computer and an internet netline and maybe
Speaker 1: a trader to help us out.
Speaker 2: That's exactly what what Ross was saying. And he very
Speaker 2: politely said to me, you know, you're here to invest,
Speaker 2: not to build software. And so he I think he
Speaker 2: stopped by my desk for the next nine months every
Speaker 2: single day and asked the same question. But it truly
Speaker 2: took us nine months to build the systems in infrastructure
Speaker 2: just to be investment ready.
Speaker 1: Wow, that's amazing nine months. And I have to ask
Speaker 1: why Evanston in Illinois? I mean, I like Lumel, Natty's
Speaker 1: and super Dog as much as the next guy, but
Speaker 1: why the middle of the Illinois suburbs the Chicago suburbs.
Speaker 2: Yeah, so it was just north of the city and
Speaker 2: it's across the street from Northwestern, so that would be
Speaker 2: the draw. You know, the train lines in there, so
Speaker 2: you can recruit people from the city. But it was
Speaker 2: probably a little more selfish, like we all lived on
Speaker 2: the north shore of Chicago and so it was an
Speaker 2: easy commute for us to work, and so that that's
Speaker 2: where we started the firm.
Speaker 1: And that is really a lovely part of the world
Speaker 1: on the lake. It's such a manageable, easy city to
Speaker 1: operate within. I mean, the winters are a little cold,
Speaker 1: but still it's a lovely place.
Speaker 2: It's a great quality of life in Chicago and outside
Speaker 2: of Chicago.
Speaker 1: So only a few years later, we're right in the
Speaker 1: teeth of the Great Financial Crisis. How did you guys
Speaker 1: navigate that?
Speaker 2: We were very fortunate and we performed quite well in
Speaker 2: our credit strategies, which which certainly we can talk about.
Speaker 2: We had both long and short credit products, and we
Speaker 2: had a long voltary position, meaning meaning we protected the
Speaker 2: balance sheet very well if there was a dislocation. And
Speaker 2: I think that went back to some of the prior
Speaker 2: lessons from prior firms, like we really need to have
Speaker 2: portfolios that we protect the balance sheet and make sure
Speaker 2: that we're able to stand up in difficult environments.
Speaker 1: I have noticed that a lot of firms that describe
Speaker 1: themselves as hedge funds really aren't very hedged. You guys
Speaker 1: operated pretty fully hedged it most of the time, right.
Speaker 2: We really did. And the systems in infrastructure we built
Speaker 2: were not only to measure risk, but to manage that risk,
Speaker 2: and so we'd find good investments both on the long
Speaker 2: and short side.
Speaker 1: So even if you have a position that that's long
Speaker 1: you have an offsetting or matching position, or do you
Speaker 1: just hedge out that long position with a short bet.
Speaker 2: So there's a quality of earning's question embedded, and I
Speaker 2: think what you said, and that's we're trying not to
Speaker 2: take macro level bets. Those for us are low quality bets.
Speaker 2: And so what we're trying to take is idiosyncratic bets,
Speaker 2: meaning we're focused on one factor or're betting on that factor.
Speaker 2: Then we're going to hedge out all of the macro
Speaker 2: risks around the portfolio.
Speaker 1: Huh. Really interesting. So we were talking about you guys
Speaker 1: launched a few years right before the financial crisis. I
Speaker 1: wanted to talk about a couple of trades from that era,
Speaker 1: perhaps most famously, you guys put on a CDO bet,
Speaker 1: a collateralized debt obligation bet that was designed to do
Speaker 1: well if housing made some extreme moves and it was nondirectional.
Speaker 1: It was hedge. Tell us a little bit about the
Speaker 1: magnetar CDO bet from the financial crisis.
Speaker 2: I talked about setting up the infrastructure to prepare to invest,
Speaker 2: and we looked at every asset class. So we looked
Speaker 2: at corporates, we looked at mortgages, we looked at credit cards,
Speaker 2: and what we found in the mortgage market is something
Speaker 2: you don't read about in textbooks. We found that we
Speaker 2: could invest on the longside in what they called the
Speaker 2: equity piece or the most risky piece of a CDO,
Speaker 2: and we could short the next level up, so the
Speaker 2: mezzanine piece, and we could short two or three times
Speaker 2: the amount. But what was super interesting was we were
Speaker 2: getting paid to hold an option that never happened.
Speaker 1: Right, Options cost you money, and that's the old joke.
Speaker 1: Option traders never die, they just expire worthless.
Speaker 2: That's exactly right. In this case, we were going to
Speaker 2: hold an option that we were going to get paid
Speaker 2: fifteen to twenty percent a year.
Speaker 1: Though, oh really, that's real money.
Speaker 2: So you never see that and you never read about that.
Speaker 2: But that's the way the markets set up. It was
Speaker 2: just too fragmented. You had people that were willing to
Speaker 2: buy pieces of these structured products because of the ratings,
Speaker 2: and on things that weren't rated, no one was willing
Speaker 2: to buy. So we took the other side of that trade.
Speaker 1: So you bought the unrated portions and you shorted the
Speaker 1: rated portions. That's correct, that's very contrary that's very interesting.
Speaker 1: How did you identify that opportunity? That's such a talk
Speaker 1: about idiosyncretic niche trades? How did you figure that out?
Speaker 2: The firm was built on finding white spaces, and so
Speaker 2: I remember back back in two thousand and five when
Speaker 2: we first started, you know, we'd think about the banks.
Speaker 2: The banks would have an equity trading desk and they'd
Speaker 2: have a debt desk, and they'd both value the same companies,
Speaker 2: and both sides of the firm with vlume completely differently.
Speaker 2: And so for us, those are exactly the opportunities we
Speaker 2: were looking for. But we didn't find it in the
Speaker 2: corporate markets. We found it in the mortgage market. It
Speaker 2: was so fragmented that the machine that sold rated products
Speaker 2: hit all the right buyers, but no one could sell
Speaker 2: the unrated piece. The unrated piece yielded twenty twenty five percent,
Speaker 2: where the rated piece would yield three to five percent,
Speaker 2: And so that difference was the arbitrage that we saw.
Speaker 1: So heading into five six, we saw real estate peek
Speaker 1: in I want to say, in volume in five and
Speaker 1: price and six. So if you're getting paid fifteen twenty
Speaker 1: percent to hold the unrated piece, isn't there a lot
Speaker 1: of downside risk that hey, if some of these mortgages
Speaker 1: go south, you could see, you know, you get cut
Speaker 1: in half or worse.
Speaker 2: That's exactly right, and so our what the modeling actually said, though,
Speaker 2: is if nothing happens in the world, we make this
Speaker 2: twenty percent return. But if anything happened, not only would
Speaker 2: our equity piece suffer, but the short side or our
Speaker 2: mezzanine pieces would make the money back. And that's the raceo,
Speaker 2: that's the ratio we had to be on. So what
Speaker 2: they call that is delta neutral in the options world.
Speaker 2: So we had a we were hedging an option, and
Speaker 2: that hedge made us a lot of money in downside scenarios,
Speaker 2: but that was never the focus. We didn't know the
Speaker 2: housing market would crash. We had no idea. What we
Speaker 2: had was a trade or an investment that we'd make
Speaker 2: twenty percent a year on and if anything happened in
Speaker 2: the world, we've really protected the balance sheet. It just
Speaker 2: happened quite quickly.
Speaker 1: So let's talk a little bit about what's going on today,
Speaker 1: especially in some of the private alternative spaces you've talked about.
Speaker 1: Pensions are now facing ill equids. The issues because private
Speaker 1: equity and venture capital have gates up a lot of
Speaker 1: long term tie ups. How has this affected your business?
Speaker 2: That's been the most challenging part of the business. Really,
Speaker 2: it really hasn't. And pension funds they're on hold today,
Speaker 2: they're not investing, and it's been not just a headwind
Speaker 2: for us, but for the entire industry. So I'll step
Speaker 2: back and I'll give you my view on it. So
Speaker 2: pensions have this mandate, they have a diversified portfolio they
Speaker 2: invest in, they receive cash flow from the portfolio, and
Speaker 2: that supports their retiree benefits. So they're always making this
Speaker 2: judgment while I produce enough cash to manage those liabilities.
Speaker 2: What happened over the last year and a half or
Speaker 2: so is rates went up and valuations went down. Now,
Speaker 2: the handshake agreement with the venture firms and the private
Speaker 2: equity firms was give them a dollar today and in
Speaker 2: five years they'll give you back two or three dollars, right,
Speaker 2: depending on how the fund did. They've stopped giving back
Speaker 2: that capital today. Oh really, And so the pension funds
Speaker 2: are faced with this illiquidity problem, and so they're borrowing
Speaker 2: money against their portfolios. They're selling positions in their portfolios.
Speaker 2: But what they're not doing is taking on new investments. Now,
Speaker 2: there's a flip side to this. Whenever we have trouble
Speaker 2: raising capital, the investment opportunities are usually very good. So
Speaker 2: our pipeline is extremely robust today.
Speaker 1: Huh, that's really intriguing. Do you see this across the
Speaker 1: board or is it really just more generalized that when
Speaker 1: you have the dislocation of five hundred plus basis points
Speaker 1: in eighteen months, what does that do to the landscape.
Speaker 2: It always changes the landscape, and so no one's ever
Speaker 2: prepared for moves of that size, even though everyone says
Speaker 2: they are. And so it's opportunities that have come out
Speaker 2: of this mainly are around the banks today, right, and
Speaker 2: so we can talk a little bit more about that.
Speaker 1: Well, let's talk a bit about Magnetar has more of
Speaker 1: a specialty finance focus than other credit managers. Tell us
Speaker 1: about that and how has the shift and rates impacted
Speaker 1: specialty financed.
Speaker 2: Yeah, so after the GFC, these private credit markets really
Speaker 2: developed and they went in two different directions. They went
Speaker 2: in direct lending, right, and so ninety percent of the
Speaker 2: market went direct lending. So that's going to middle market
Speaker 2: companies and disintermating the banks and lending directly to them.
Speaker 2: For us, we went in a different direction. We went
Speaker 2: in specialty finance and especially finances is a bit smaller,
Speaker 2: but it's been around for ages and it touches our
Speaker 2: lives every day.
Speaker 1: Define it if you would, Yeah, so's it's.
Speaker 2: The cars we drive, so auto loans, it's the houses
Speaker 2: we buyer ranso, it's mortgages. It's the podcasts that we stream, right,
Speaker 2: so it's all the music royalties and streaming royalties. So
Speaker 2: it's it's assets like that. And the interesting part about
Speaker 2: these assets is there's a very strong investment thesis around
Speaker 2: them because they have three attributes when combined together, that
Speaker 2: most other asset classes don't have, and certainly I don't
Speaker 2: think direct lending has. So the first is you can
Speaker 2: find very stable payoff profiles. Second, you can find assets
Speaker 2: or these payoff profiles that don't correlate to the overall market,
Speaker 2: so you're not worried about them moving with the SMP
Speaker 2: or the highyield index. And third, and most importantly, they
Speaker 2: don't correlate to one another. And so I'll give you
Speaker 2: an example of a three asset portfolio. So In our
Speaker 2: music royalty portfolio, returns could be driven by an artist's
Speaker 2: song downloads like Taylor Swift downloads. And in our solar
Speaker 2: finance portfolio, it's by how much sunlight there is in
Speaker 2: a particular region. Or lately we've been lending a lot
Speaker 2: against in video GPUs for cloud usage and that's driven
Speaker 2: by aim machine learning growth. If I think about just
Speaker 2: those three assets, they shouldn't correlate to the SMP, but
Speaker 2: they certainly shouldn't correlate to one another. That's how we
Speaker 2: can really produce a high quality of earnings for our investors.
Speaker 1: Really interesting you mentioned in banks earlier. I know that
Speaker 1: Magnetar has had opportunities to partner with banks via what
Speaker 1: some people call rig cap transactions. Tell us a little
Speaker 1: bit about those.
Speaker 2: So rag cap or some people call them significant risk
Speaker 2: transfer transactions. That is a massive opportunity for credit funds today.
Speaker 2: And so a lot of people would think that the
Speaker 2: banks are selling assets, right, but in our experience, we're
Speaker 2: seeing them efficiently transfer the credit risk of assets but
Speaker 2: keeping the customer relationship. It's a very important distinction.
Speaker 1: How do you do that either you have the asset
Speaker 1: and the credit risk. I would imagine or if you don't,
Speaker 1: if it's a mortgage, you sell the mortgage and you're out,
Speaker 1: how do you have How are you a little bit pregnant?
Speaker 2: Exactly? So the solution to that are these reglatory capital solutions.
Speaker 2: And so you're taking a portfolio of credit risk and
Speaker 2: you're transferring that credit risk to a private credit fund
Speaker 2: like us, but maintaining the customer relationship. And what banks
Speaker 2: I think eminently realizes the customer relationship is how they
Speaker 2: drive revenues. So traditional banking FX advisory services, you know,
Speaker 2: high net worth and so without that they start to
Speaker 2: lose their franchise. This is the product that allows them
Speaker 2: to transfer credit risk. And for private credit firms, we
Speaker 2: all of a sudden have access to some of their
Speaker 2: highest quality lending. Right It's it's been the fastest growing
Speaker 2: part of our portfolio.
Speaker 1: So I'm trying to figure out if they're transferring the
Speaker 1: credit risk to you, I'm assuming you're taking some sort
Speaker 1: of contract with the bank that you're going to assume
Speaker 1: the liability if X happens, and then you, with your expertise,
Speaker 1: are hedging out that risk through your options or credit desk.
Speaker 2: Yeah, and that's exactly right. But importantly, the first thing
Speaker 2: we're doing is we're using data to really understand what
Speaker 2: the credit risk is. And with that data, then we
Speaker 2: can start thinking about what what the likely hedges are
Speaker 2: for the macro risk of the portfolio.
Speaker 1: So let's talk about that. What is your approach to data,
Speaker 1: How do you institutionalize data management and how do you
Speaker 1: leverage the idea of hey, we know a lot about this,
Speaker 1: here's how we monetize it.
Speaker 2: People talk a lot about the importance of data, but
Speaker 2: it's usually in a different context. It's usually for these
Speaker 2: quantitative strategies or quantitative hedge funds. For US, data is
Speaker 2: the lifeblood of specialty finance. So for US, we use
Speaker 2: data to solidify our assumptions. What we do with the
Speaker 2: data is we forecast a performance of assets by matching
Speaker 2: statistically significant characteristics. So back to the redcap examples, we've
Speaker 2: looked at hundreds and hundreds of these types of investments
Speaker 2: and we've taken all the data from those transactions. Now
Speaker 2: we look at a new transaction. A bank comes to us
Speaker 2: and says, I need to produce more regulatory capital on
Speaker 2: this one hundred to ten thousand loans. We can take
Speaker 2: the character risks of their polio today and out of
Speaker 2: sample price them through history. That helps us price the
Speaker 2: credit right and understand what risk we're taking on.
Speaker 1: So this is really fairly sophisticated financial engineering. That is,
Speaker 1: it sounds like it's a way for the banks to
Speaker 1: meet the SEC requirements, the increased post financial crisis financial
Speaker 1: reserves that they're required to have, but not have to
Speaker 1: sell off big parts of the business and not have
Speaker 1: to sell off the relationships you described.
Speaker 2: I think that's exactly right. And even when you get
Speaker 2: to what happened earlier in twenty twenty three with Credit Swiss,
Speaker 2: that again put pressure on the banks to really think
Speaker 2: about how they're going to hedge their credit risk. This
Speaker 2: is their hedge to credit risk.
Speaker 1: And then related to the way you guys work with
Speaker 1: data management, tell us a little bit about Magnetar Labs.
Speaker 2: Yeah, Magnetar Labs has been a great initiative for us.
Speaker 2: It's really the institutionalization of our data. So we're trying
Speaker 2: to produce infrastructure where we can ingest large data sets
Speaker 2: very quickly and not only use them in specific business lines,
Speaker 2: but use it across business lines. So I'll give you
Speaker 2: a few examples In our merger arbitrage business, we've tracked
Speaker 2: every detail and every characteristic of every merger and acquisition
Speaker 2: for the last twenty plus years, and even our recent
Speaker 2: restaurant finance business, we have itemized bills of every customer.
Speaker 2: This is really useful data. So here's an example from
Speaker 2: just a couple of months ago. We were looking at
Speaker 2: an auto loan transaction and the servicer tried to overload information,
Speaker 2: so they gave us eighty million line items of information
Speaker 2: on purpose or I don't know if it's on purpose
Speaker 2: or not, but eighty million line items, one hundred different files,
Speaker 2: forty gigabytes of memory. So that's far too much for
Speaker 2: Excel to handle or any local Python right or overload
Speaker 2: to any one machine. But our Magtar Labs team was
Speaker 2: able to take that in in just minutes. Right now,
Speaker 2: we can analyze the data and then look at look
Speaker 2: at the attributes to that investment and see if it
Speaker 2: fits in our portfolio. We actually made the made the investment.
Speaker 1: So so what sort of hardware using is this? Old?
Speaker 1: Cloud based? Is this I think of like, oh, sounds
Speaker 1: like a mainframe. I don't even know if mainframes still
Speaker 1: exist anymore.
Speaker 2: Everything's gone to the cloud now, right, it is pretty amazing.
Speaker 1: And that sort of distributed computer has no ceiling, essentially
Speaker 1: no capacity correct, infinite capacity correct. Really really interesting. So
Speaker 1: let's talk a little bit about the status quo. I
Speaker 1: read something where you said it was important to not
Speaker 1: maintain the status quo. Explain what that means.
Speaker 2: We're not efficient market theorists, but we certainly believe that
Speaker 2: in the medium for long term the markets are efficient.
Speaker 1: Kind of mostly eventually.
Speaker 2: Efficient, eventually efficient. Right, So we know that what works
Speaker 2: today at work several years forward, right, And so I'll
Speaker 2: give you the converts example. Like you mentioned, I've been
Speaker 2: in the convert market for thirty years now, and sometimes
Speaker 2: converts are very cheap, you know, commal bonn arbitrage, and
Speaker 2: when they are, we have a lot of our portfolio
Speaker 2: in it. But today we have less than one percent
Speaker 2: of our portfolio in the asset class. And it's just
Speaker 2: because it's not cheap or not cheap enough versus what
Speaker 2: we can invest in.
Speaker 1: And is the expectation is that whatever inefficiencies were there,
Speaker 1: markets figured it out. It's arbitraged way, and the odds
Speaker 1: are against that ever becoming really cheap or might it
Speaker 1: you know, become a trade again.
Speaker 2: Yeah, some of it's supplied demand, right, and you're driven.
Speaker 2: But I think the most important part is we're not
Speaker 2: hiring desks of people to stay in an asset class.
Speaker 2: That's the status quo. That's not what we're looking for.
Speaker 2: We're looking to aggressively rotate our capital to get to
Speaker 2: the optimal portfolio, to get to the best risk adjusted return.
Speaker 1: So does this mean you're exploring new business areas and
Speaker 1: strategies or is it just that you're rolling through the
Speaker 1: various other opportunities that you've fished in before.
Speaker 2: Yeah, it's a good question. We maintain our diligence on
Speaker 2: other strategies, but we always have a strong research and
Speaker 2: development pipeline. Huh.
Speaker 1: Really interesting. So let's talk about some of the things
Speaker 1: that are going on today. Artificial intelligence AI dominated the
Speaker 1: twenty twenty three narrative. You made investments in core Weave,
Speaker 1: a specialized cloud provider. Tell us a little bit about
Speaker 1: what you're doing in that space. Is that related it
Speaker 1: all to what we talked about earlier with Magnetar Labs.
Speaker 2: Yeah. Core Weave is such an exciting story for Magnetar.
Speaker 2: I can't say enough good things about it. Sometimes the
Speaker 2: stars just align. You have the right time, the right product,
Speaker 2: the right team. And for the listeners that don't know
Speaker 2: who core Weave is, corev is the largest owner of
Speaker 2: GPUs outside of the hyperscalers, Google or Amazon Web services.
Speaker 2: They sell is high performance compute, which is sort of
Speaker 2: the picks and shovels to enable AI. So if you
Speaker 2: are a new AI lab, you need somebody like core
Speaker 2: Weave to host that specialized cloud for you. Now, we
Speaker 2: were the first institutional investor, so all the way back
Speaker 2: in twenty twenty and at that point, core We've had
Speaker 2: just twenty six million dollars of top line revenue, and
Speaker 2: I think we're the first firm to really get comfortable
Speaker 2: lending against that asset called high performance compute. Right, So
Speaker 2: they've had explosive growth, But what we haven't been is
Speaker 2: just a capital provider. We've really been a partner to
Speaker 2: them within the business. Are you guys also a customer
Speaker 2: of their We're a customer there is in Magnetar Labs,
Speaker 2: just like you intimated before, and so we use them
Speaker 2: for Magnetar Labs. But we have Ernie Rodgers, our COO,
Speaker 2: sits on their board. We have daily interaction between our
Speaker 2: management teams. This company is growing so quickly they need
Speaker 2: all the help they can get around them, and what
Speaker 2: we try to help with is mostly balance sheet management.
Speaker 1: So for a firm that specializes in credit, this almost
Speaker 1: sounds like a venture investment.
Speaker 2: There are parts of this that are venture ish, but
Speaker 2: what's interesting is the underlying asset, this high performance compute
Speaker 2: is something that we can really scale with and so
Speaker 2: I think that's been the innovation in the marketplace. So
Speaker 2: you mentioned in twenty twenty three on the venture side,
Speaker 2: we actually let around for them a four hundred million
Speaker 2: dollars Series B round, but we also let a two
Speaker 2: point three billion dollar financing on their high performance compute assets.
Speaker 1: So it's capital and credit, it's equity and credit.
Speaker 2: It's equity and credit, and it's a true partnership between
Speaker 2: the firms. Towards the end of last year, in December,
Speaker 2: the firm got valued at seven billion dollars. And to me,
Speaker 2: it's just a start. This company just the you're just
Speaker 2: going to see it continue to grow over time.
Speaker 1: Well, let me know about the C round when that comes.
Speaker 1: What do you guys, in all seriousness, what are you
Speaker 1: guys looking for? What sort of characteristics are you looking
Speaker 1: for when a company like this comes along. You mentioned
Speaker 1: idiosyncratic types of investment. This sounds very specific and not
Speaker 1: all that usual.
Speaker 2: It is. It's very specific, but we always start with
Speaker 2: the assets. So it's assets, it's data, and its structure. Right,
Speaker 2: So first on the assets, we're usually focused on specialty
Speaker 2: finance because the assets drive the performance of the company. Right.
Speaker 2: The next thing we need is data. We can't predict
Speaker 2: the future, so we're trying to do is use historical
Speaker 2: data to predict how an asset reacts in different states
Speaker 2: of the economy, and finally we use structure around that
Speaker 2: to protect the downside of the investment itself.
Speaker 1: Huh. Sounds really intriguing. So as long as we're talking
Speaker 1: about twenty twenty three, we saw a lot of bank
Speaker 1: failures last year, we saw the response to a rapid
Speaker 1: increase in rates. You had a front row seat to
Speaker 1: what transpired. Share what that was like, and what did
Speaker 1: you guys see in the space. Tell us about the
Speaker 1: opportunities that came up from those events.
Speaker 2: Those were stressful events for the entire community, you know,
Speaker 2: for Silicon Valley Bank in particular. I remember it was
Speaker 2: Friday night, and the question of moral hazard appeared immediately.
Speaker 2: So it's California based, right. It was a lot of
Speaker 2: venture funds that had accounts there, and the questions started
Speaker 2: coming out, is their cash safe, will they be able
Speaker 2: to access it? If so, when will they be able
Speaker 2: to make payroll? A lot of these smaller companies were
Speaker 2: very worried about payroll, and in California specifically will the
Speaker 2: border directors be liable if they couldn't make payroll? And
Speaker 2: then they started rolling it out to what about all
Speaker 2: the similar situated banks. So we all know that by
Speaker 2: Monday morning, the contagion risk was too high and the
Speaker 2: government did step in. But the opportunities really arose from that.
Speaker 2: And so the first opportunity, which is very similar to
Speaker 2: doing regulatory capital investments with large banks, is being a
Speaker 2: risk capital provider to the small and regional banks. And
Speaker 2: I think we're going to see more and more of
Speaker 2: this overtime. It's credit firms partnering with banks where we
Speaker 2: have access to all the diligence around their customers and
Speaker 2: together we can jointly underwrite and make loans.
Speaker 1: You mentioned moral hazard. Where was the moral hazard with
Speaker 1: Silicon Valley Bank? Was it the equity investors in the
Speaker 1: bank or was it the customers with way over the
Speaker 1: FDIC limits? And if there isn't a quarter million or
Speaker 1: half a million dollar ceiling, did the Federal Reserve essentially say, okay,
Speaker 1: FDIC insurance is now unlimited? Is that the moral hazard?
Speaker 2: We found that to be the moral hazard. Who's the
Speaker 2: governor of how much risk a bank can take? So
Speaker 2: the federal government came out and they said, you have
Speaker 2: a two hundred and fifty thousand dollars limit, but people
Speaker 2: were putting in one hundred million dollars into the account
Speaker 2: because they got twenty five basis points more of interest, right,
Speaker 2: So how do you actually control that? That's the moral
Speaker 2: hazard we saw now. I think at the end of
Speaker 2: the day, it was just too big of a risk
Speaker 2: to the economy.
Speaker 1: The contagion risk was Hey, there's a moral hazard question
Speaker 1: to the depositors. But rather than stand on ceremony, let's
Speaker 1: stop this before it spreads.
Speaker 2: That's exactly right.
Speaker 1: Huh, that's really that's really kind of intriguing. What else
Speaker 1: has been the result of this rapid spike in interest rates?
Speaker 1: What do you see in the private credit world that hey,
Speaker 1: blame the fed. But here's what's gone off the rails.
Speaker 2: For credit investors. Everyone thinks about fixed rate risk, right,
Speaker 2: but that's easily hedgable, and that's a choice that that
Speaker 2: credit investors make. So for people like magnets, are we
Speaker 2: swap everything back to floating rate, we don't have any
Speaker 2: edge on a macro risk like that. But the second
Speaker 2: order effect is much much more difficult, and that's the
Speaker 2: business impact of rates changing. So when we think about businesses,
Speaker 2: we think about that margins change as rates go up
Speaker 2: or down, to originations change, What about the refinancing of
Speaker 2: their debt? I think those are the things that are
Speaker 2: going to keep lawyers and restructuring advisors very busy for
Speaker 2: the foreseeable future.
Speaker 1: So given this current environment where first rates went up
Speaker 1: further and faster than it seemed like, the consensus amongst
Speaker 1: analysts was they stayed higher longer than people expected. There's
Speaker 1: no recession. People have been talking about that for two years,
Speaker 1: and the expected rate cuts I guess tied to that
Speaker 1: recession haven't showed up yet. We were talking about March,
Speaker 1: now we're talking about May, even June of twenty twenty four.
Speaker 1: How does this affect how you think about putting portfolios together,
Speaker 1: constructing portfolios. And I am very aware that you guys
Speaker 1: aren't macro tourists. You don't play that game. But given
Speaker 1: the volatility and the various probabilistic outcomes, how does that
Speaker 1: impact your thinking.
Speaker 2: It's a very good question, and for us, we think
Speaker 2: a lot about the affordability factor. So I'll give you
Speaker 2: two examples at both extremes. So we have a partial
Speaker 2: ownership in an auto loan business in Ireland, and so
Speaker 2: when rates are at zero, we're loaning to consumers. It's
Speaker 2: somewhere between five and a half and six percent, and
Speaker 2: we're gaining market share rapidly. All of a sudden, risk
Speaker 2: free rate goes to five percent, that equivalent loan we're
Speaker 2: gonna have to charge consumers eleven percent. It's just it's
Speaker 2: simply unaffordable.
Speaker 1: Right, different calculus, different.
Speaker 2: Calculus, And so we have a decision to make. We
Speaker 2: can stay at eleven percent, keep the same margin but
Speaker 2: reduce origination, or we can take our margin down and
Speaker 2: try to keep market share. Either way, the business is
Speaker 2: worth a lot less. That has a lot of affordability
Speaker 2: factor effect to it. On the other end of the
Speaker 2: stream is our music royalties business. So in music royalties,
Speaker 2: you know, the simplification is you get some small part
Speaker 2: of worldwide streaming revenue. So it takes Spotify. Spotify raise
Speaker 2: rates recently and they had no customer churn, so some
Speaker 2: percentage of that rate went directly to the royalty holder.
Speaker 2: There was very little affordability factor. So we're veering away
Speaker 2: from things that the business impact on affordability is high,
Speaker 2: and we're investing in things where it's lower.
Speaker 1: Private credit seems to be getting a lot of attention
Speaker 1: these days. Why is that.
Speaker 2: If you would have asked me going into the global
Speaker 2: financial crisis, I know we keep going back fifteen years now,
Speaker 2: I would have said the banks had it all right.
Speaker 2: They controlled origination of all of the different asset classes,
Speaker 2: especially finance and lending, so whether its credit cards or
Speaker 2: mortgages or loans to their customers. But after as the
Speaker 2: financial crisis happened, there was a spotlight flashed on their
Speaker 2: balance sheet. They just had too much risk and so
Speaker 2: the regulators came in to reduce that risk. So the
Speaker 2: simple question is that private credit came in and stepped
Speaker 2: in the shoes of banks and really took markets. But
Speaker 2: this scale was much larger than anyone could have anticipated.
Speaker 2: But for me, what I think about a lot is
Speaker 2: the more profound effect is the talent transfer. The talent
Speaker 2: transfer from the banks that went to the credit providers,
Speaker 2: the private credit providers that set the stage for this
Speaker 2: mass growth in private credit.
Speaker 1: So let's talk about talent a little bit. One of
Speaker 1: the things I know your firm is proud of is
Speaker 1: more than half of your workforce has been with the
Speaker 1: firm for five years or longer. So first, I'm assuming
Speaker 1: that's not typical in your space, and second I have
Speaker 1: to ask what contributed to that sort of retention.
Speaker 2: I'm very proud. I think we're very proud of that fact,
Speaker 2: and I think it is very atypical. But the credit
Speaker 2: really goes to so many people at Magnetar. You know,
Speaker 2: we're a global firm, but I think with a Midwestern ethos,
Speaker 2: so it's work hard, stay humble, be a good teammate,
Speaker 2: good person, And I think if we can consistently demonstrate
Speaker 2: those qualities will attract people who value them. And it's
Speaker 2: a virtuous circle. And what's incredible about the firm is
Speaker 2: when we get when we're focused, how much we can
Speaker 2: get done. So I'll give you a simple example. We
Speaker 2: started a summer internship program several years ago, and we
Speaker 2: started with two interns and we built the program around them,
Speaker 2: and this last summer we had sixty interns for a
Speaker 2: two hundred person organization. You know, it's pretty humbling when
Speaker 2: you think about all the exceptional people around Magnetar and
Speaker 2: how much we can get done.
Speaker 1: So one of the things we've been hearing a lot
Speaker 1: about as big companies try and get their staff back
Speaker 1: in the office five days a week is corporate culture.
Speaker 1: Tell us a little bit about what is differentiating Magnetar
Speaker 1: from a cultural perspective. You know, starting with Evanston, Illinois,
Speaker 1: not a lot of private credit shops in the neighborho
Speaker 1: that's true.
Speaker 2: You know, first principles, it's always about integrity. But I
Speaker 2: think for most tenured firms integrity is high. But for us,
Speaker 2: the north star is always creating the best portfolios to
Speaker 2: deliver to our clients. And we really have two foundational
Speaker 2: points there. One is we run a very flat organization
Speaker 2: and secondly, we've thought a lot about alignment. So on
Speaker 2: the flat organization, it doesn't matter who has the right answer.
Speaker 2: We know we're trying to reach the right answer. So
Speaker 2: I'll take our investment committees as an example. We have
Speaker 2: bi weekly investment committees. And it's not the top two
Speaker 2: or three people that sit on the investment committee. We
Speaker 2: have one hundred and twenty people in that meeting, you know,
Speaker 2: every two weeks. Wow, And we really want people to
Speaker 2: voice opinions, right, and that's how we're going to get
Speaker 2: to the best answer. You know, we talk about it
Speaker 2: internally a lot. We're trying to manage investments by consensus,
Speaker 2: and so especially in private credit, if someone doesn't like something,
Speaker 2: we can change it. We can change you know, what
Speaker 2: a structure looks like. And so we'll get to something
Speaker 2: where we actually get consensus, you know. On the alignment point.
Speaker 2: It really goes back to not giving individual capital allocations,
Speaker 2: but incentivizing people to create the best portfolio. So you
Speaker 2: asked about pretention before. I think the reason why people
Speaker 2: stay at Magnetar long term is because they believe in
Speaker 2: these philosophies and they believe if we get to the
Speaker 2: right portfolio that everyone wins in the long term.
Speaker 1: Huh. Really very interesting, So we only have you for
Speaker 1: a limited amount of time. Let me jump to my
Speaker 1: favorite questions that I ask all of my guests starting
Speaker 1: with tell us what you've been streaming these days? What's
Speaker 1: been keeping you entertained? Either video or audio, Netflix or podcast?
Speaker 1: What's keeping you entertained?
Speaker 2: Yeah, I think this will be different than most of
Speaker 2: the people have stated on this show. But for me,
Speaker 2: it's been.
Speaker 1: Flow sports, flow sports.
Speaker 2: Flow sports. So I have my older son is in
Speaker 2: between high school and college right now, and he's playing
Speaker 2: hockey and juniors for a year, and so all of
Speaker 2: his games are on flow Sports. So Christy and my
Speaker 2: son Jake and I sit around and watch every game together.
Speaker 1: What does he what positions does he play?
Speaker 2: He plays defense. It's been a lot of fun flow sports.
Speaker 1: Is that like a YouTube channel on internet channel? How
Speaker 1: do you find that?
Speaker 2: We pull it up on Apple TV or on our phone,
Speaker 2: and yeah, it's been great for a lot of youth sports.
Speaker 1: Huh. Interesting.
Speaker 2: And then on the podcast side, this podcast aside on.
Speaker 1: Here you never have to bring this podcast up.
Speaker 2: Of course. So I listened to one by Larry Burnsteed
Speaker 2: what Happens Next, and he's been doing it since COVID,
Speaker 2: and it's sort of six minutes of really relevant topics
Speaker 2: that come out every weekend.
Speaker 1: What happens next. I'm going to check that out. I
Speaker 1: love the idea of these having done long form for
Speaker 1: a decade, I love the idea of five, ten, twelve
Speaker 1: minutes and you're done, And there's something very appealing about that.
Speaker 1: Let's talk about your mentors who helped to shape your career.
Speaker 2: You know, it always starts with their parents, and then
Speaker 2: you know football coaches like like Larry Kimbaum. But I
Speaker 2: mentioned Dave Bunning before. I think most people would say,
Speaker 2: you know, I'm a product of his teachings over time.
Speaker 1: Huh. Interesting. How about books? What are some of your favorites?
Speaker 1: What are you reading right now?
Speaker 2: You know I always like Michael Lewis books. We had
Speaker 2: him at one of our off sites a few years ago.
Speaker 2: You ever remember this book is one of my favorites.
Speaker 2: You know, Memos from the Chairman by Alan Greenberg. Sure,
Speaker 2: that was a.
Speaker 1: Great bay Greenberg Greenberg correct.
Speaker 2: And what was so interesting about his book is, you
Speaker 2: know he's running the firm, but he's really in the
Speaker 2: nuche of every detail.
Speaker 1: It was very interesting, including the paper clips recycling.
Speaker 2: Between every expense.
Speaker 1: So let me interrupt you one second. Say I was
Speaker 1: at a lunch just with you know, three people at
Speaker 1: a table and he came in and sat like a
Speaker 1: table or two over and the whole meal, I mean
Speaker 1: this was later in his life. The whole meal was
Speaker 1: a parade of people coming in to genuflect in front
Speaker 1: of him and just pay their respects. It was like
Speaker 1: the Pope was having lunch. I don't know how well
Speaker 1: you know of him, and the book certainly is kind
Speaker 1: of you know, you don't get a sense of how
Speaker 1: other people perceived him, but fascinating guy.
Speaker 2: I met him when he was at bear Stearns and
Speaker 2: I felt the same way. He was a special person.
Speaker 1: What other books are you reading? Anything else you want
Speaker 1: to mention?
Speaker 2: So my colleague and the head of our London ops,
Speaker 2: Alan Schafferan, recommended the book The Missing Billionaires and the
Speaker 2: reason that I just started. But the reason it's interesting
Speaker 2: is it's very focused on asset allocation and mistakes and
Speaker 2: asset allocation and how much that can cost a portfolio
Speaker 2: over time. So it has a lot of parallels to
Speaker 2: the way we think about asset allocation and magnets are.
Speaker 1: Huh really interesting. Our final two questions, what sort of
Speaker 1: advice would you give a recent college grad interest in
Speaker 1: the career in either private creditor alts, fixed income, any
Speaker 1: of the areas you specialized in.
Speaker 2: It's what we think about for the firm. I know
Speaker 2: what I tell my kids would be, it's people on platform.
Speaker 2: You need to be around good integrist people that are
Speaker 2: great mentors, and the platform needs to be growing over time,
Speaker 2: so each seat should be more more than the person
Speaker 2: in it.
Speaker 1: Huh. Interesting. And our final question, what do you know
Speaker 1: about the world of investing, of credit of risk management
Speaker 1: today that you wish you knew when you were first
Speaker 1: getting started thirty years or so ago.
Speaker 2: Yeah, this may be an atypical answer, but I think
Speaker 2: about luck versus skill a lot more than I ever
Speaker 2: did before. If you make a decision today and don't
Speaker 2: have an outcome for ten years, you don't really know
Speaker 2: if you were good at it or not right, whether
Speaker 2: you won or lost. If you're able to have a
Speaker 2: much faster feedback loop now, you can really hone your
Speaker 2: skills and understand whether you're making good decisions or bad decisions.
Speaker 2: And so I think for me, and as we look
Speaker 2: at people's track records, we really try to think about
Speaker 2: how often do they get to make the same decision
Speaker 2: and what's the process around that decision and how different
Speaker 2: is it over time?
Speaker 1: Very interesting. I have a book for you, but I'm
Speaker 1: gonna bet you've already read it, Michael Mobison's book I
Speaker 1: have not Please, Separating skill from luck in investing, business
Speaker 1: and sports like that is right up your al that
Speaker 1: is thank you, and he's a fascinating author and really
Speaker 1: a fascinating book. I would bet you you would appreciate it.
Speaker 2: Excellent.
Speaker 1: Thank you David for being so generous with your time.
Speaker 1: We have been speaking with David Snyderman. He is the
Speaker 1: global head of Alternative credit and fixed income and managing
Speaker 1: partner at Magnetar, a fifteen billion dollar multi strategy, multi
Speaker 1: product alternative investment management firm. If you enjoy this conversation,
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