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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is Master's in Business with Barry red Holds on

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Speaker 2: Bloomberg Radio.

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Speaker 1: I'm Barry Ridults. You're listening to Masters in Business on

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Speaker 1: Bloomberg Radio. This week on the podcast What Can I Say?

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Speaker 1: Brian Higgins has put together an amazing track record handling

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Speaker 1: distressed and stressed debts as well as other forms of credit,

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Speaker 1: real estate, collateralized obligations. King Street is a fascinating firm.

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Speaker 1: It was formed in nineteen ninety five. Over the course

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Speaker 1: of the past I don't know, twenty five years, they've

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Speaker 1: put together really an impressive track record. They have already

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Speaker 1: returned about eighty percent of the net gains they've had

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Speaker 1: to their limited partners. Really, there are a few people

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Speaker 1: in the world who have a better sense of distress, asset, credit,

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Speaker 1: real estate, and how to not only do the fundamental research,

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Speaker 1: but tactically trade around the positions. As an example, institutional

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Speaker 1: investors mentioned King Street in twenty twenty two, perhaps the

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Speaker 1: worst year for hedge funds since eight o nine. They

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Speaker 1: were down three point eight percent. Their benchmarks were down,

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Speaker 1: you know, fixed income was fifteen percent, equities was twenty

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Speaker 1: something percent. To be low single digits is really just

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Speaker 1: a testament to their performance. U there are a few

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Speaker 1: people who are more knowledgeable about fixed income, credit, real

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Speaker 1: estate and distressed investing than Brian Higgins. I found this

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Speaker 1: conversation to be fascinating, and I think you will also,

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Speaker 1: with no further ado, King Streets Brian Higgins.

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Speaker 2: Well, thank you very much, Barry me.

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Speaker 1: I appreciate you being here. I've been looking forward to

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Speaker 1: this conversation for a while. Let's jump right into it.

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Speaker 1: You get a bachelor's in business administration from Villanova University.

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Speaker 1: What was investing always the career plan?

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Speaker 2: Well, actually I started out electrical engineering.

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Speaker 1: Me too. That's funny you say that first first.

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Speaker 2: Two years electrial engeering. You graduate from high school. I'm

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Speaker 2: good at math and science, and you know, I always

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Speaker 2: had an idea with go into business, but I felt

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Speaker 2: that electrical engeering would be a good foundation, and that's

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Speaker 2: what I started at. But after two years it was

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Speaker 2: sort of not very interesting, and I was intrigued by

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Speaker 2: the markets at the time. In the mid eighties, you

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Speaker 2: had a lot of stuff going on in terms of

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Speaker 2: the merger boom, and Wall Street was rocking, and I said, hey,

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Speaker 2: this is sort of interesting. I was probably the only

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Speaker 2: electrical engeering major that had a subscription to the Wall

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Speaker 2: Street Journal. So my roommate, who was a mechanical engineer,

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Speaker 2: said to me, what are you doing. Why don't you

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Speaker 2: just switch over to finance, which I said.

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Speaker 1: Sure, makes makes a lot of sense. So you come

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Speaker 1: out of Villanova, you end up at First Boston in

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Speaker 1: nineteen eighty seven in the special Situations fund and distressed

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Speaker 1: securities group.

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Speaker 2: Yeah, we started out. I started out banking the two

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Speaker 2: year banking program, which merchant banking was the group I

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Speaker 2: was in. My co founder was an analyst. He came

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Speaker 2: out of Yale. He was in the Bankruptcy Advisory group.

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Speaker 2: So we're in the analyst program together, sixty five of us.

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Speaker 2: And after two years I went down to trade distress Proprietarily,

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Speaker 2: I got promoted to associate without going to business school.

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Speaker 2: I had done an undergraduate business and felt that, you know, hey,

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Speaker 2: I can do this, but I want to get some

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Speaker 2: different just rather being the analyst that never left. I

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Speaker 2: want to get some markets experience, but you know, stay

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Speaker 2: in the proprietary side. So there was a proprietary trading

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Speaker 2: group that was forming and I was joined that, and

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Speaker 2: it was an interesting time in high yield as you know,

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Speaker 2: shortly thereafter Drexel, which goes from one day issuing commercial

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Speaker 2: paper and the next day they go bankrupt.

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Speaker 1: So what was it like trading distress securities in the

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Speaker 1: late eighties that had to be you know, a pretty

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Speaker 1: let's call it target rich environment.

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Speaker 2: Well, I would say it was interesting because the Marcus

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Speaker 2: sophistication that we have today in terms of really the

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Speaker 2: fluidity of capital, structures, of trading desks, et cetera, seamlessness

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Speaker 2: which you had, you had. It was interesting. You'd see

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Speaker 2: things go from say the investment grade market to the

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Speaker 2: high yield market. There was a big disconnect as they

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Speaker 2: move positions that started to trade wider. The buyers didn't

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Speaker 2: have the ability to go cross assets and a cross

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Speaker 2: let's say ratings as they are today. You know, mutual

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Speaker 2: funds were very siloed and now they're a bit wider mandates.

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Speaker 2: So it was yes, you had you know, ni CE

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Speaker 2: ratings changed for insurance companies post Drexel, and so there

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Speaker 2: was a number of less liquid markets that made for

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Speaker 2: quite wide spreads. You had a default cycle, so you

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Speaker 2: had trading with the crude and trading flat, and so

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Speaker 2: there was certainly a number of different movements, but there

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Speaker 2: was certainly downside of these things. So one had to

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Speaker 2: be very rigorous in your investing, in your analysis to

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Speaker 2: do the investing.

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Speaker 1: So you're at a big bank in eighty seven, you know,

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Speaker 1: obviously there were a lot of market dislocations later that year.

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Speaker 1: What was that experience like for you? It was.

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Speaker 2: Interesting. I mean, it certainly was indoctrination into the world

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Speaker 2: of finance. You go from you know, these big parties

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Speaker 2: during the summer as you welcome to the new analysts,

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Speaker 2: to the market crash obviously in October of eighty seven.

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Speaker 2: I think the volatility that ensued and then you know

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Speaker 2: the world's going to end, and then you know it

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Speaker 2: comes back. I think that just spoke to the resiliency markets,

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Speaker 2: but also the certainly the volatili and fragility of certain

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Speaker 2: sectors that one has to be mindful of. And you know,

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Speaker 2: I think ultimately there was a number of opportunities that

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Speaker 2: came out. I had no money back in eighty seven,

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Speaker 2: but certainly, you know, some of the maging directors and

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Speaker 2: other people that had some money, they made quite a

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Speaker 2: quite a bit of profits on some of the left

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Speaker 2: for dead Microsoft and others that were just you know,

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Speaker 2: sold to very low levels.

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Speaker 1: So that sort of this location sounds like it was

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Speaker 1: a formative experience.

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Speaker 2: Sure, and you know, many of these things I look at,

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Speaker 2: you know growing up, you know, gas lines in the

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Speaker 2: seventies and you know, we had real recessions back of

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Speaker 2: the seventies and eighties. These days, you know, it sounded

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Speaker 2: like an old, cranky, old guy. But when you you know,

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Speaker 2: that's the challenge of prosperity that it doesn't really prepare

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Speaker 2: oneself investors too, right, you know, if you always have

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Speaker 2: the FED put, if you always have you know just

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Speaker 2: QI forever, that that does have a lot of complacency.

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Speaker 2: And you see it as you've gone from active to

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Speaker 2: passive investing, people are like, well, why do I pay

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Speaker 2: you know for active investing? I could just you know,

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Speaker 2: it's easy. And now is dispersion has increased in fixed income.

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Speaker 2: I think it's brings back, you know, the active investing.

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Speaker 2: But you know, structurally there's there's a lot of money

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Speaker 2: that's gone into to pass investing, which we believe will

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Speaker 2: sew the seeds for the opportunity set for some time

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Speaker 2: going forward.

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Speaker 1: And arguably, passive doesn't work nearly as well on the

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Speaker 1: fixed income side as it does on equities.

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Speaker 2: Well, I mean again passive. You know it's nowadays if

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Speaker 2: you look at the big banks, they're doing portfolio trading

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Speaker 2: with large swaths of their institutional clients. And so someone

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Speaker 2: will say I want give me a triple B single

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Speaker 2: A exposure and these industries, and they go out and

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Speaker 2: dial it up or down in terms of exposure.

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Speaker 1: Uh.

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Speaker 2: That creates opportunities within the trading market. So uh for

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Speaker 2: our long short credit hedge fund, you know there's there's

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Speaker 2: this locations and opportunities to trade, uh, to make money

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Speaker 2: in those situations. But I mean, you know it's in

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Speaker 2: these these markets as we as we pivot going forward. Again,

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Speaker 2: if if you're saying I'm gonna earn five and change percent,

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Speaker 2: you know my cash and you know, fixed income no

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Speaker 2: problem to Fault rates are near zero. Now, fault rates

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Speaker 2: are kind of skewed a bit because you do have

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Speaker 2: perhaps in high yield. If you look at you know,

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Speaker 2: these liability management exercises and other restructurings out of court,

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Speaker 2: it doesn't default, but then there's a lesser consideration you

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Speaker 2: get for your your claim. Uh, so it does factor enter.

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Speaker 2: But you know, you've had a very benign default environment

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Speaker 2: as we've had a lot of money printed for quite

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Speaker 2: some time. If you look at the Fed's balance sheet,

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Speaker 2: the M two that has been printed, you know there's

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Speaker 2: there's been a great tailwind. Huh.

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Speaker 1: Really interesting. So let's fast forward to nineteen ninety five.

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Speaker 1: What led you guys to depart and co found King Street.

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Speaker 2: So going from you know, First Boston banking, trading, distress proprietarily,

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Speaker 2: then we started internal hedge fund at First Boston and

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Speaker 2: that was from ninety one to ninety four, so I

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Speaker 2: think about I already had started, in effect helped form

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Speaker 2: to these businesses. And so at the end of ninety four,

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Speaker 2: again many issues with First Boston, which became Credit Swiss,

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Speaker 2: became ubs. They've I think I had five CEOs I

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Speaker 2: worked under for the seven eight years I was there,

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Speaker 2: and so we said we could do this, and my

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Speaker 2: co founder and myself we left around a few months

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Speaker 2: apart in ninety four form King Street started trading in

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Speaker 2: ninety five. We never thought we'd start with the princely

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Speaker 2: sum of four million dollars, which is what we started with.

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Speaker 2: We thought, oh, we're gonna start with fifty. All these

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Speaker 2: people are like, yeah, I'll give you five, I'll get

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Speaker 2: you ten. You know, no problem in encouraging us to leave,

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Speaker 2: So be it. We started with fort One of the

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Speaker 2: first million dollars came from Jimmy Kine, who was chairman, yeah, chairman,

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Speaker 2: CEO of Bear Stearns. I had met him through another

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Speaker 2: friend of mine, Vince TC, and know him through golf

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Speaker 2: and got to be friendly with him, and he heard

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Speaker 2: what I was doing and he said, you know, I'm

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Speaker 2: happy to give you a million dollars of my money

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Speaker 2: to manage, and you can use my name in marketing,

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Speaker 2: and so you know, it was it was quite comical

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Speaker 2: because I have back then a list of references. Right.

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Speaker 2: It felt like I was going for a job interview

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Speaker 2: asking for money back then. And we were two guys

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Speaker 2: twenty nine years old, as you know. My brother called

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Speaker 2: us two guys capital and we would you go around

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Speaker 2: all the usual suspects, begging for something, and we ended up,

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Speaker 2: as I said, with four million. But you know, Jimmy

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Speaker 2: took a personal pride and he took and people say,

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Speaker 2: you mean I can call this guy he's CEO Bear

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Speaker 2: Stearns said, I said, yeah, yeah, call him up. So

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Speaker 2: he call him up and then immediately he'd called me opposite.

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Speaker 2: You know, how did I do you get the money yet?

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Speaker 2: So you know, it was it was, it was very humbling.

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Speaker 2: It was a very sweet, you know mentor of mine

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Speaker 2: as an Irish Catholic kid. You know, it's nice to

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Speaker 2: have a rabbi such as such as Jimmy and Vince

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Speaker 2: you know, introduced us. And also Vince was incredibly helpful

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Speaker 2: so having to you know, fathers of King Street, if

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Speaker 2: you will, And they asked for nothing in return except

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Speaker 2: the satisfaction that they received by seeing us grow and prosper,

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Speaker 2: which was again very very fortunate and blessed to have

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Speaker 2: that those two people in my life.

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Speaker 1: So from four million dollars you eventually grow assets over

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Speaker 1: time to twenty six twenty seven billion dollars. That's an

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Speaker 1: incredible track record over twenty five years. And I also

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Speaker 1: can't help but notice it's been reported by places like

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Speaker 1: Institutional Investor that you guys have distributed about eighty percent

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Speaker 1: of those gains, which is really impressive. It tells me

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Speaker 1: that you're concerned about scaling up too large. Tell us

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Speaker 1: a little bit about why you kept the firm at

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Speaker 1: a fairly modest size in terms of capital that you're trading.

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Speaker 2: Well, I think there's opportunities that EBB and flow, and

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Speaker 2: I think it's important to have the right structure, and

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Speaker 2: so we have a number of business lines. We have

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Speaker 2: our Cloudwise loan obligation business COLO business that is super

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Speaker 2: interesting business. It does help feed into our long short

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Speaker 2: credit business, which is our long standing business that we

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Speaker 2: started in nineteen ninety five. We also have a number

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Speaker 2: of drawdown businesses, drawdown meeting, drawdown credit, distress businesses, and

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Speaker 2: those have longer duration attached to them, which is commensurate

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Speaker 2: with the opportunities we're investing in. We also have a

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Speaker 2: real estate business that we so used to be. The

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Speaker 2: credit headphone business had what's called side pockets. A couple

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Speaker 2: of years ago. We remove them and it's just the

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Speaker 2: liquid long short credit business. And the side pockets come

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Speaker 2: in the form of these draw down fund structures. That

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Speaker 2: is something the industry has gravitated towards the last say

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Speaker 2: ten years, and.

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Speaker 1: Meaning as each of those things mature, they get paid

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Speaker 1: out to the correct right LPs.

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Speaker 2: Right, so you got three or three or one year

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Speaker 2: extension perhaps which three are investing through harvesting and then

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Speaker 2: payout traditional but they can vary, and so that's really

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Speaker 2: having different buckets and one has to you know, it

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Speaker 2: gets complicated because you have different investors in different buckets,

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Speaker 2: and then there are different vintages and then they say, okay,

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Speaker 2: I need distributions and you know which ventures you do,

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Speaker 2: and the timing they can be, oh, I don't have

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Speaker 2: money this year for next year. So there's there's a

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Speaker 2: whole planning that goes on in terms of when you

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Speaker 2: launch different funds. But it for for us in the

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Speaker 2: long shore credit business, there's lots of lots of opportunities

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Speaker 2: as a number of the people that we used to

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Speaker 2: see all the time in the markets are no longer

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Speaker 2: around and so that we believe has shrunk the competition,

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Speaker 2: if you will, in the long shore credit trading business

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Speaker 2: for stress to stress, and I think also it's it's

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Speaker 2: where are we in the cycle? Do we ever do

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Speaker 2: we believe that there will ever be a credit cycle?

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Speaker 2: Do we think we'll ever have defaults again? Or you know,

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Speaker 2: will we continue to grow? Depending on your math, we're

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Speaker 2: I have two trillion of deficits and you know, then

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Speaker 2: all these other amounts of debt around the world in

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Speaker 2: the government side that is being printed to uh support

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Speaker 2: global economies. I think at a certain point we see

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Speaker 2: this competition for capital, if you will, between you know

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Speaker 2: what the public sector, uh, the government sector, in the

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Speaker 2: in the private sector is trying to you know. So

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Speaker 2: I think it's gonna be hard for rates to go

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Speaker 2: low because there's still you know, a lot of depths

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Speaker 2: that's spending out there. I mean, think about the deaths

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Speaker 2: thats we have when it's pretty much full employment, economy

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Speaker 2: is still pretty strong.

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Speaker 1: What are we one point eight trillion a year?

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Speaker 2: I mean to some say two. You know, it always

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Speaker 2: I see different numbers all the time. So it's always

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Speaker 2: kind of like who's math, if you.

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Speaker 1: Will, huh really interesting. And it seems like everybody and

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Speaker 1: their brother managed to refinance both household and corporations in

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Speaker 1: the twenty tens when rates were low, except Uncle Sam

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Speaker 1: couldn't couldn't get around to it.

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Speaker 2: Yeah, and you know you say that the I joke,

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Speaker 2: the greatest asset and many people's portfolio is their thirty

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Speaker 2: year two three percent mortgage, right, And so affordability has

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Speaker 2: been problematic because of the supply, you know, we're short

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Speaker 2: whatever five million homes, but the you know, the affordability

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Speaker 2: is still because of that and other factors, has been difficult.

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Speaker 2: So I mean, I think they're they're you know, it's

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Speaker 2: a very it's a complicated landscape on the consumer.

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Speaker 1: Side, to say the least. I mentioned earlier the Institutional

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Speaker 1: Investor Lifetime Achievement Award you and your co founding partner received.

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Speaker 1: Tell us what that meant to you. That is not

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Speaker 1: something that many people get tagged with. I think there

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Speaker 1: have been forty recipients of that from Institutional Investor. Tell

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Speaker 1: us what that meant?

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Speaker 2: That sort of recognition, It's an incredible honor and an

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Speaker 2: honor shared by all the current and past, you know,

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Speaker 2: people that worked at King Street and so we are

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Speaker 2: some of the effort that has put forth over the

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Speaker 2: thirty years, not just the partners, but and also the

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Speaker 2: investors that believed in us and continue to believe in us,

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Speaker 2: and counterparties, et cetera. And it sounds tripe, but it

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Speaker 2: is very appropriate and true that, you know, we're just

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Speaker 2: beneficiaries of, you know, some amazing people that we lucky

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Speaker 2: to deem us worthy over the years. It's very humbling,

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Speaker 2: it's very exciting, and it also you know, it's interesting

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Speaker 2: because you know there's there's always well why now, why

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Speaker 2: are you doing these podcasts? Or why would you do that?

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Speaker 2: And I guess it's it's really we have a story

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Speaker 2: to tell and I'm very proud of King Street and

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Speaker 2: the people, and I think it's a great opportunity. And

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Speaker 2: it also is a sign of the times where we are.

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Speaker 2: And I think evolution personally and professionally as a firm

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Speaker 2: as an institution is so critical and I think that's

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Speaker 2: part of our staying power, is our desire to continuous improvement.

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Speaker 2: And you know, you look back and people might say, well,

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Speaker 2: why do you focus on the past? Well, you know,

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Speaker 2: focus on the past so that there is a future.

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Speaker 2: I think the Lifetime Achievement Award is it is kind

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Speaker 2: of I thought they give it to dead guys whatever,

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Speaker 2: But you know, we're not dead yet and don't plan

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Speaker 2: it ever being so we're we're excited about the going forward.

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Speaker 1: Like that concept you don't know where you're going unless

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Speaker 1: you understand where you've already been. It makes a lot

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Speaker 1: of sense. Let's talk a little bit about what you

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Speaker 1: guys do you mentioned earlier stressed and distressed. I know

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Speaker 1: that they're two very different things, but there's some nuance

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Speaker 1: there help us understand the distinction between stressed assets and

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Speaker 1: distressed assets.

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Speaker 2: Yeah, I think it is kind of nuance in a way.

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Speaker 2: I think, you know, distressed assets, you know, you're you're

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Speaker 2: on your way to default most times or restructuring. Stressed assets,

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Speaker 2: you know, can be out of favor assets. I think

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Speaker 2: you're splitting hairs. You know. Some would say, oh, triple

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Speaker 2: C bucket, that's all distressed, and if you look in

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Speaker 2: single B, double B, oh, that's stressed. You know. I

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Speaker 2: think it also depends on where we are on the

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Speaker 2: cycle what can be stressed distressed. And also if you

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Speaker 2: look at a stressed infrastructure situation, that might not be

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Speaker 2: that wide in terms of total spread. So let's say

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Speaker 2: you have you know, a thousand basis points over the

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Speaker 2: treasury is a say, a distress situation. And then if

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Speaker 2: you look at something that normally trades say one hundred over,

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Speaker 2: but it's trading at two hundred over and that could

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Speaker 2: be stressed. Now you would say, well, that's in high yield.

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Speaker 2: That's nothing we can see a you know, twenty fifty

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Speaker 2: hundred and two hundred spread widening or tightening, you know

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Speaker 2: in high yield. Now that is I'm giving a historical perspective.

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Speaker 2: It seems like the last couple of years, this is

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Speaker 2: not your father's high yield market when they you know,

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Speaker 2: high yield meant junk bonds, and these days high yield

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Speaker 2: is trying to be an investment grade market given the

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Speaker 2: security five ye these days you had the FED come

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Speaker 2: in and push a lot of the banks and say, hey,

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Speaker 2: you can't have a ton of leverage on the high

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Speaker 2: yield issuance, and so they kind of help create the

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Speaker 2: private credit market, if you will, or it went into

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Speaker 2: loans and so and lack of covenant protection. But the

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Speaker 2: the quality of the higher market is dramatically different than

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Speaker 2: you know, once I came up.

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Speaker 1: So it sounds like it's not so much that there's

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Speaker 1: any real distinction other than a spectrum of risk of

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Speaker 1: your debt is going to have a higher yield but

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Speaker 1: greater risk that comes along with it, and stressed distressed

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Speaker 1: are just different points along that spectrum.

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Speaker 2: Is that fair? H? I think that's fair. I mean again,

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Speaker 2: I'm sure some would have their own classification system as

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Speaker 2: it were I would, I would just liken it and

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Speaker 2: too you know, distressed as you know, real operational issues

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Speaker 2: or financial issues that as I say, inevitably preponderance of

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Speaker 2: outcomes is to a restructuring or a bankruptcy out of

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Speaker 2: quart or others, and so versus the stress which is

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Speaker 2: not always heading that way.

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Speaker 1: So let's delve into not your father's high yield market.

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Speaker 1: How does the high yield market differ today than when

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Speaker 1: you begin in the nineties, and how much credit or

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Speaker 1: blame lay at the feet of the Federal Reserve.

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Speaker 2: Well, I wouldn't say it's the Fed. I think the

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Speaker 2: markets have evolved dramatically. And if you look at markets

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Speaker 2: around the world, you know, the US capital markets or

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Speaker 2: the envy of the world, because the banks have had

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Speaker 2: less and less responsibility, if you will, meaning they're twenty

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Speaker 2: five percent banking a traditional banks and seventy five percent

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Speaker 2: capital markets, which would be you know, all sorts of bonds,

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Speaker 2: private and public. You go to Europe, it's seventy five

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Speaker 2: percent banks. You go to developing markets, it's ninety five

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Speaker 2: hundred percent banks. And so they're more susceptible boom and

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Speaker 2: buck bus because there's that lack of you know, cushion

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Speaker 2: and you know, and the more systemic in terms of

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Speaker 2: their issues when when the economy turns. But if you

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Speaker 2: go back to the question on you know, a high

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Speaker 2: yield and how it's differentiated, there was just a lot

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Speaker 2: more leverage back then. I remember doing the Allied Federated deal. Now,

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Speaker 2: granted the ristory rate was higher, but you had you know,

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Speaker 2: sixteen percent loans, seventy percent loans, You had you know,

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Speaker 2: eight times ten times leverage, right, So so you have

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Speaker 2: less leverage, you know, lower spread going in as they said,

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Speaker 2: higher quality and then and the greater leverage is being

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Speaker 2: found at times in some of the private credit or

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Speaker 2: or other loans. But I think this extreme leverage is

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Speaker 2: not as prevalent as it once was, and so I

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Speaker 2: would I would argue that, you know, the markets have

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Speaker 2: been more rational in terms of their approach to leverage

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Speaker 2: than ever before, at least you know, my almost forty

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Speaker 2: years doing this.

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Speaker 1: So you also talked about the US markets versus you know,

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Speaker 1: Europe and emerging markets. How much credit it goes to

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Speaker 1: places like the FDIC or the SEC or is it

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Speaker 1: just the full faith and credit of the US government

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Speaker 1: standing on top of a very healthy macro economy.

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Speaker 2: In terms of the market construct comparing us versus the

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Speaker 2: rest of the world. I think, you know, there's a

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Speaker 2: lot of credit due to the innovation, open regulation, but

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Speaker 2: also involving regulation, and also it helps having these large banks.

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Speaker 2: If you look at there hasn't been the big bang

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Speaker 2: in Europe as they said it was going to be. Right,

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Speaker 2: you look at the wrestling going on between you to

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Speaker 2: credit and commerce bank, and you look at the German

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Speaker 2: banks and some of the issues the stagnant aspect of

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Speaker 2: that economy. If you look at savings products over there,

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Speaker 2: there's not the full depth and breadth of products that

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Speaker 2: we have.

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Speaker 1: Even money market you don't have money market funds to

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Speaker 1: the same degree you have in here.

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Speaker 2: Correct. Lot of times they do it with you know, okay,

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Speaker 2: like you have japan Post, you have Italian Post, you

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Speaker 2: have Deutsche Post, you have you know, the regulatory environment

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Speaker 2: for asset management in Europe is quite onerous and is

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Speaker 2: difficult to passport. I mean, they have that these days,

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Speaker 2: but there's still the reality is there's still a lot

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Speaker 2: of inflexibility within the regulatory framework that and look, I

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Speaker 2: you know, I've spent a fair amount of time with

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Speaker 2: regulators and central bankers and participated in a number of

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Speaker 2: forums and meetings on the topic. It does get complicated

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Speaker 2: because Europe is Europe, but it's still a number of

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Speaker 2: different countries within that. The US having this large, deep

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Speaker 2: market does help. And look, I think we do have

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Speaker 2: the innovation, sophistication, and I think the beneficiarrea is the

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Speaker 2: world being able to buy sophisticated products that really are

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Speaker 2: solution providers in all way shapes of form.

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Speaker 1: I want to delve a little deeper into what makes

434
00:25:03,640 --> 00:25:08,199
Speaker 1: King Street so unique, not just its performance, but the

435
00:25:08,240 --> 00:25:13,119
Speaker 1: way you guys approach the world. You combine a fundamental

436
00:25:13,160 --> 00:25:18,560
Speaker 1: approach with very disciplined and opportunistic trading approach, which is

437
00:25:19,080 --> 00:25:21,680
Speaker 1: you know, usually those are two totally different animals. It's

438
00:25:21,760 --> 00:25:26,400
Speaker 1: interesting to see, especially in credit and stressed and distressed

439
00:25:26,680 --> 00:25:30,400
Speaker 1: see those two married. Tell us a little bit about

440
00:25:30,520 --> 00:25:35,359
Speaker 1: how that set of strategies evolved and what sort of

441
00:25:35,400 --> 00:25:37,000
Speaker 1: opportunities it's created for you.

442
00:25:37,760 --> 00:25:42,440
Speaker 2: I think going back to history, which is nineteen eighty nine, Well,

443
00:25:42,480 --> 00:25:44,159
Speaker 2: so you can go back to A seven with the crash,

444
00:25:44,240 --> 00:25:48,120
Speaker 2: seeing the importance of tactical trading, go back to A nine,

445
00:25:48,240 --> 00:25:50,840
Speaker 2: the formation of the distress the prop group, the distressed

446
00:25:50,840 --> 00:25:56,560
Speaker 2: securities group on the trading desk, but being part of

447
00:25:56,600 --> 00:25:59,639
Speaker 2: that when you had very wide bits spreads and you

448
00:25:59,640 --> 00:26:04,720
Speaker 2: could see that execution and entering an exit position, there

449
00:26:04,800 --> 00:26:08,920
Speaker 2: was a massive amount of differentiation and performance that could

450
00:26:08,920 --> 00:26:11,879
Speaker 2: be created if one were to be able to trade

451
00:26:11,880 --> 00:26:16,160
Speaker 2: it tactically. So for example, if things go quite wide

452
00:26:16,200 --> 00:26:18,879
Speaker 2: and spreads where they can trade ten bond points wide,

453
00:26:19,960 --> 00:26:21,879
Speaker 2: being able to buy on the bid side versus the

454
00:26:21,920 --> 00:26:26,120
Speaker 2: as side. If it's fifty sixty market, for example, that's

455
00:26:26,200 --> 00:26:30,439
Speaker 2: twenty percent differential. So just your entry point is massive.

456
00:26:30,480 --> 00:26:34,040
Speaker 2: And also we call ourselves short long investors.

457
00:26:33,520 --> 00:26:35,560
Speaker 1: And people say as opposed to long short.

458
00:26:35,400 --> 00:26:40,600
Speaker 2: Correct because many of our biggest longs start out as shorts.

459
00:26:41,400 --> 00:26:42,880
Speaker 2: And why that's important is.

460
00:26:43,240 --> 00:26:45,679
Speaker 1: Meaning you cover the short and then go long correct

461
00:26:45,720 --> 00:26:47,199
Speaker 1: at the end of the At the end of the

462
00:26:47,240 --> 00:26:50,640
Speaker 1: short trade, it's like, oh, if it's good enough to cover,

463
00:26:50,840 --> 00:26:54,240
Speaker 1: maybe we want to completely reverse our original views.

464
00:26:54,040 --> 00:26:58,000
Speaker 2: Right, And so initially there's always the and we could

465
00:26:58,000 --> 00:27:00,520
Speaker 2: sit there a bit of time and it could expensive

466
00:27:00,520 --> 00:27:02,920
Speaker 2: carrying shorts, so you have to be mindful of that.

467
00:27:03,240 --> 00:27:07,119
Speaker 2: It can take some time. However, it does enable us

468
00:27:07,160 --> 00:27:09,520
Speaker 2: to have done a fair amount of work in advance,

469
00:27:09,640 --> 00:27:13,680
Speaker 2: and so let's say something breaks, hopefully we've been short

470
00:27:13,720 --> 00:27:15,959
Speaker 2: it and we have a fair amount of institutional knowledge

471
00:27:15,960 --> 00:27:20,120
Speaker 2: about that situation, and then we can cover it or wait,

472
00:27:20,160 --> 00:27:24,040
Speaker 2: it's going to get worse, because you know, oftentimes management

473
00:27:24,080 --> 00:27:27,000
Speaker 2: comes out and they say, okay, they find some guy,

474
00:27:27,040 --> 00:27:28,920
Speaker 2: they shoot him and say that was the bad guy,

475
00:27:28,960 --> 00:27:30,440
Speaker 2: and now we're back and you're like, wait a minute,

476
00:27:30,480 --> 00:27:33,080
Speaker 2: that guy, you know was the janitor. What do you

477
00:27:33,119 --> 00:27:35,760
Speaker 2: mean or are we going to execute on this or that?

478
00:27:36,080 --> 00:27:38,199
Speaker 2: And you say they've tried to execute you know, for

479
00:27:38,200 --> 00:27:39,760
Speaker 2: the last three years, I have able to do it,

480
00:27:40,760 --> 00:27:45,080
Speaker 2: so it really having a bit of perspective is important,

481
00:27:45,359 --> 00:27:48,800
Speaker 2: and then you can then time it appropriately. Now we're

482
00:27:48,840 --> 00:27:51,920
Speaker 2: not market timers, but it does give us, I think,

483
00:27:51,960 --> 00:27:57,639
Speaker 2: a relative value perspective. So coupling the trading and understanding, okay,

484
00:27:57,640 --> 00:28:00,480
Speaker 2: a lot of sellers are coming out, there's more coming out.

485
00:28:01,440 --> 00:28:06,120
Speaker 2: Having that supply demand question answered is important as well.

486
00:28:06,480 --> 00:28:08,720
Speaker 1: So I want to put some flesh on the bones

487
00:28:09,280 --> 00:28:12,640
Speaker 1: of what it looks like combining the tactical with the fundamental.

488
00:28:12,880 --> 00:28:16,320
Speaker 1: And I'm going to quote numbers from institutional investor because

489
00:28:16,359 --> 00:28:19,520
Speaker 1: I know as a regulated entity, I know what I

490
00:28:19,600 --> 00:28:22,800
Speaker 1: cannot say. I know you can't give specific numbers, but

491
00:28:22,840 --> 00:28:27,440
Speaker 1: I could cite what institutional investor had observed. Twenty twenty

492
00:28:27,440 --> 00:28:29,880
Speaker 1: two was the worst year for hedge funds since two

493
00:28:29,880 --> 00:28:31,760
Speaker 1: thousand and nine. The S and P five hundred and

494
00:28:31,800 --> 00:28:37,560
Speaker 1: down twenty percent, bonds down fourteen percent. King Street, according

495
00:28:37,560 --> 00:28:41,640
Speaker 1: to II, was down only three point eight percent, a

496
00:28:41,880 --> 00:28:46,680
Speaker 1: massive outperformance to either the SMP or the Bloomberg AG.

497
00:28:47,360 --> 00:28:50,160
Speaker 1: Tell us what it was like trading in twenty twenty two,

498
00:28:50,840 --> 00:28:53,360
Speaker 1: first time in forty years stocks and bonds were down

499
00:28:53,400 --> 00:28:54,520
Speaker 1: double digits together.

500
00:28:55,200 --> 00:28:57,200
Speaker 2: I would say it's set the table going back to

501
00:28:57,240 --> 00:29:00,400
Speaker 2: say twenty twenty if you look in the pandemic when

502
00:29:00,680 --> 00:29:02,600
Speaker 2: you know world's going to end, and then you know,

503
00:29:02,640 --> 00:29:05,800
Speaker 2: a lot of equity injected, and then then we had

504
00:29:05,800 --> 00:29:09,560
Speaker 2: the vaccine news came out, everything rallied, but there was

505
00:29:09,640 --> 00:29:13,000
Speaker 2: so much stimulus being put and I think, you know,

506
00:29:13,920 --> 00:29:17,040
Speaker 2: just let's say, I don't like losing money ever, and

507
00:29:17,400 --> 00:29:21,440
Speaker 2: is my co founders say, you know, relative performance, but

508
00:29:21,480 --> 00:29:24,560
Speaker 2: you can't eat your relatives. So it's just important to

509
00:29:25,240 --> 00:29:30,400
Speaker 2: from our perspective, contextualize that. And so we are very disciplined.

510
00:29:30,440 --> 00:29:32,600
Speaker 2: I think one of the things that we looked to

511
00:29:32,880 --> 00:29:35,200
Speaker 2: was like, hey, let's go up in quality, up in liquidity,

512
00:29:35,680 --> 00:29:38,800
Speaker 2: and that was a concern. I think one of the

513
00:29:38,840 --> 00:29:42,480
Speaker 2: things took us by surprise was okay, you know how

514
00:29:42,560 --> 00:29:45,200
Speaker 2: much inflation really rooted and how quickly and how high

515
00:29:45,200 --> 00:29:47,480
Speaker 2: it went. So I'd say, you know, that was something

516
00:29:47,560 --> 00:29:50,360
Speaker 2: we missed. Again, we always try to focus on what

517
00:29:50,400 --> 00:29:54,080
Speaker 2: we did wrong and we correct those. Hopefully then the

518
00:29:54,240 --> 00:29:57,920
Speaker 2: going gets better going forward trading in twenty two, as

519
00:29:57,920 --> 00:30:00,720
Speaker 2: I said, I wouldn't say it's too differentiated, but again,

520
00:30:01,200 --> 00:30:03,880
Speaker 2: you know, an absence of a true distress cycle, I

521
00:30:03,920 --> 00:30:06,080
Speaker 2: think that it loses the sort of meaning. But if

522
00:30:06,120 --> 00:30:08,600
Speaker 2: you look at you know, in twenty twenty there was

523
00:30:08,680 --> 00:30:11,680
Speaker 2: a number of things that is really for me at

524
00:30:11,720 --> 00:30:13,560
Speaker 2: more signature important time.

525
00:30:14,160 --> 00:30:17,760
Speaker 1: So I want to talk about a few specific investment

526
00:30:17,880 --> 00:30:22,560
Speaker 1: strategies that King Street does. In twenty seventeen, you launched

527
00:30:22,560 --> 00:30:25,880
Speaker 1: a collateralized loan obligation business. Tell us a little bit

528
00:30:25,880 --> 00:30:26,880
Speaker 1: about that strategy.

529
00:30:27,200 --> 00:30:31,680
Speaker 2: So we've been investing in clos, mezzanine and opportunistically for

530
00:30:31,720 --> 00:30:35,120
Speaker 2: a number of years, equity and et cetera. We've always

531
00:30:35,160 --> 00:30:39,160
Speaker 2: had this credit expertise, and we felt that as a

532
00:30:39,560 --> 00:30:44,080
Speaker 2: compliment for our investors and to benefit our launch short

533
00:30:44,120 --> 00:30:48,400
Speaker 2: credit business. To have the CLO strategy was we think

534
00:30:48,440 --> 00:30:53,080
Speaker 2: a distinctive manage and so we've had a terrific growth

535
00:30:53,480 --> 00:30:56,960
Speaker 2: and successful business launch and continue to grow from strength

536
00:30:56,960 --> 00:30:59,760
Speaker 2: to strength there in both the US and Europe issues

537
00:31:00,720 --> 00:31:04,200
Speaker 2: during twenty twenty, there was a number of opportunities that

538
00:31:04,320 --> 00:31:07,280
Speaker 2: came out to rescue finance a number of the companies

539
00:31:07,320 --> 00:31:11,440
Speaker 2: we had relationships with, and so it has proven very

540
00:31:11,440 --> 00:31:16,400
Speaker 2: complementary to our business. We describe our business in terms

541
00:31:16,400 --> 00:31:20,640
Speaker 2: of overlapping circles, and that is that we will have

542
00:31:20,800 --> 00:31:24,720
Speaker 2: different fund strategies and there might be a bond or

543
00:31:24,760 --> 00:31:27,800
Speaker 2: a loan situation that we might see in different funds

544
00:31:27,800 --> 00:31:31,880
Speaker 2: if they meet the investment criteria liquidity duration that we

545
00:31:32,120 --> 00:31:34,880
Speaker 2: are looking for in that particular strategy, and so there

546
00:31:34,960 --> 00:31:41,959
Speaker 2: is real synergistic effects and ability to analyze these situations

547
00:31:42,040 --> 00:31:42,880
Speaker 2: quite rigorously.

548
00:31:43,200 --> 00:31:47,360
Speaker 1: Let's talk about another overlapping business line, real estate. What

549
00:31:47,400 --> 00:31:49,080
Speaker 1: do you guys do in the real estate.

550
00:31:49,320 --> 00:31:52,000
Speaker 2: So we've been doing real estate, as we mentioned, first

551
00:31:52,120 --> 00:31:55,520
Speaker 2: real estate finance and then real estate buying the equity

552
00:31:55,840 --> 00:31:59,600
Speaker 2: or buying actual properties for quite some time a number

553
00:31:59,640 --> 00:32:02,560
Speaker 2: of years ago. Go again, as I mentioned earlier, the

554
00:32:02,600 --> 00:32:06,040
Speaker 2: demise if you will, the stop doing side pockets and

555
00:32:06,360 --> 00:32:09,200
Speaker 2: you set up separate real estate funds. And so we've

556
00:32:09,320 --> 00:32:12,640
Speaker 2: set up a number of funds. We've also invested in

557
00:32:12,840 --> 00:32:18,800
Speaker 2: some specialties such as student housing in Europe. We've done

558
00:32:18,960 --> 00:32:22,720
Speaker 2: last mile logistics, We've done movie studios. We've also done

559
00:32:22,720 --> 00:32:25,520
Speaker 2: a number of financings as the banks have pulled back,

560
00:32:25,960 --> 00:32:29,720
Speaker 2: has created great opportunities in that. And then more recently,

561
00:32:30,360 --> 00:32:34,800
Speaker 2: we bought a data center business that specializes in AI

562
00:32:35,000 --> 00:32:38,600
Speaker 2: and high performance compute, which is quite an exciting business.

563
00:32:38,640 --> 00:32:42,440
Speaker 1: That's cul of war. I was reading about that and saying, wow,

564
00:32:42,520 --> 00:32:46,680
Speaker 1: this seems to be a little off of what I

565
00:32:46,720 --> 00:32:52,680
Speaker 1: was expecting. Liquid cooled, AI, data center, liquid cooled, what's

566
00:32:52,720 --> 00:32:53,200
Speaker 1: that about?

567
00:32:53,760 --> 00:32:56,720
Speaker 2: So to give you the history, So years ago we

568
00:32:57,000 --> 00:33:01,160
Speaker 2: started focusing on growth lending, growth financing. You know, it's

569
00:33:01,200 --> 00:33:04,600
Speaker 2: funny VC distress. There's a lot of similarities between the two.

570
00:33:05,600 --> 00:33:08,000
Speaker 2: You know, you don't know what's going to happen with

571
00:33:08,080 --> 00:33:10,040
Speaker 2: the company, is it going to make it not make it?

572
00:33:10,280 --> 00:33:14,040
Speaker 2: So for example, Airbnb in door dash and twenty twenty

573
00:33:14,120 --> 00:33:18,120
Speaker 2: we lent them money prior to their IPOs. Now, the

574
00:33:18,840 --> 00:33:23,120
Speaker 2: v on the LTV loan to value the value oftentimes

575
00:33:23,120 --> 00:33:26,040
Speaker 2: the disparity because when you ask a tech person what's

576
00:33:26,080 --> 00:33:30,640
Speaker 2: this company worth, generally it's it's very very high numbers,

577
00:33:30,640 --> 00:33:34,600
Speaker 2: which we don't always support from our valuation. But if

578
00:33:34,640 --> 00:33:38,720
Speaker 2: the loan percentage is quite small five ten percent, then

579
00:33:39,040 --> 00:33:41,400
Speaker 2: there's a margin of safety, and we have a lot

580
00:33:41,440 --> 00:33:44,840
Speaker 2: of covenants to protect ourselves. And you say, we did

581
00:33:44,840 --> 00:33:47,920
Speaker 2: some of that. We looked at GPU financing, which GPU

582
00:33:48,040 --> 00:33:53,040
Speaker 2: is the Navidia chip, that's what they produce, and so

583
00:33:53,320 --> 00:33:56,760
Speaker 2: we looked at some financings there. Couldn't get quite comfortable

584
00:33:56,800 --> 00:34:00,040
Speaker 2: the depreciation curve because you know, Navidia comes out of every

585
00:34:00,040 --> 00:34:03,160
Speaker 2: the other day with a new chip, and so we said,

586
00:34:03,200 --> 00:34:05,640
Speaker 2: why lend your money if every two years you're going

587
00:34:05,720 --> 00:34:07,800
Speaker 2: to have a new chip, and so worry about the

588
00:34:07,920 --> 00:34:10,960
Speaker 2: value eroding on that chip. And so even though we

589
00:34:11,080 --> 00:34:13,840
Speaker 2: over earning in terms of financing, now there'll be situations

590
00:34:13,840 --> 00:34:16,680
Speaker 2: and opportunities that will make sense to lend in that sector.

591
00:34:17,120 --> 00:34:20,080
Speaker 2: However that's we then you know, said, wow, this data

592
00:34:20,080 --> 00:34:22,359
Speaker 2: center business is going to have legs for quite some time.

593
00:34:22,840 --> 00:34:28,360
Speaker 2: We looked at the hyperscale business insanely competitive and said, okay,

594
00:34:28,440 --> 00:34:31,360
Speaker 2: can't make a mark or find an edge there. And

595
00:34:31,400 --> 00:34:34,080
Speaker 2: that's when we came up with colo Oar, which was

596
00:34:34,120 --> 00:34:38,320
Speaker 2: selling itself. They had been doing liquid cooling for thirteen years.

597
00:34:38,360 --> 00:34:41,120
Speaker 2: They started company thirteen years the company ten years ago,

598
00:34:41,880 --> 00:34:45,520
Speaker 2: operational in a co location business in Santa Clara, California,

599
00:34:45,520 --> 00:34:49,439
Speaker 2: in the heart of all these tech bohemoths, and they've

600
00:34:49,440 --> 00:34:54,200
Speaker 2: been DGX certified by Navidia for over five years. Liquid cooling,

601
00:34:54,280 --> 00:34:57,560
Speaker 2: the way we do it is it's full true liquid cooling.

602
00:34:57,560 --> 00:35:00,000
Speaker 1: Meaning it's more efficient, more productive.

603
00:35:00,320 --> 00:35:02,759
Speaker 2: Yeah, so just think about just the construct right, So

604
00:35:02,800 --> 00:35:04,719
Speaker 2: you have the whole data center, you have three foot

605
00:35:04,800 --> 00:35:09,439
Speaker 2: raise floors, you have an intake outtake of water that's

606
00:35:09,480 --> 00:35:13,719
Speaker 2: ambient water temperature, goes, flows around and goes to the rack.

607
00:35:14,160 --> 00:35:17,120
Speaker 2: Many will do liquid cooling to the rack, but separately,

608
00:35:17,200 --> 00:35:20,720
Speaker 2: and that's very expensive because in effect you're retrofitting. Ninety

609
00:35:20,719 --> 00:35:24,080
Speaker 2: five plus percent of the data centers are air cooled.

610
00:35:24,640 --> 00:35:27,880
Speaker 2: As we know, air water is three thousand times more

611
00:35:27,920 --> 00:35:31,880
Speaker 2: effective cooling than air. And so the PUE, which is

612
00:35:32,000 --> 00:35:35,520
Speaker 2: the efficiency rating that they utilize, we're like one point

613
00:35:35,560 --> 00:35:39,400
Speaker 2: three and many are one point five six, et cetera.

614
00:35:39,680 --> 00:35:42,920
Speaker 2: So it's very efficient. You can have a denser facility

615
00:35:43,360 --> 00:35:45,880
Speaker 2: and it can handle the AI chips. The other metrics

616
00:35:45,920 --> 00:35:49,520
Speaker 2: that people use is the killowatz per cabinet, and so

617
00:35:49,640 --> 00:35:52,080
Speaker 2: we can host up to two hundred and fifty kilowats

618
00:35:52,120 --> 00:35:55,319
Speaker 2: per cabinet, where you know five ten twenty is these

619
00:35:55,320 --> 00:35:59,840
Speaker 2: traditional data centers air cooled and so as Winning Gretzky

620
00:36:00,280 --> 00:36:02,400
Speaker 2: used to say, I skate where the puck is going

621
00:36:02,440 --> 00:36:06,239
Speaker 2: to be and the chips are all about, we need

622
00:36:06,280 --> 00:36:10,880
Speaker 2: liquid cooling. Also, as we look to satisfy the future

623
00:36:10,880 --> 00:36:13,279
Speaker 2: which will be inferenced versus the l M, the big

624
00:36:13,320 --> 00:36:17,000
Speaker 2: training models, there will be a need for the data center.

625
00:36:17,040 --> 00:36:20,480
Speaker 2: So we're having a number of conversations and across many

626
00:36:20,480 --> 00:36:24,560
Speaker 2: different verticals. Our real estate group is executing, plus the team.

627
00:36:25,280 --> 00:36:29,120
Speaker 2: It's super exciting and and it's again it's it's something

628
00:36:29,160 --> 00:36:32,239
Speaker 2: that evolved out of our overlapping circles with the financing.

629
00:36:33,239 --> 00:36:35,920
Speaker 2: You know, we we don't. There's always a method to

630
00:36:36,000 --> 00:36:38,759
Speaker 2: it that we evolve into.

631
00:36:39,000 --> 00:36:44,240
Speaker 1: Huh, really fascinating. So let's let's start out talking about

632
00:36:44,520 --> 00:36:50,000
Speaker 1: why we're even talking. For for most of King Street's history.

633
00:36:50,080 --> 00:36:54,440
Speaker 1: You've been a quiet firm. You You quoted one of

634
00:36:54,480 --> 00:36:57,759
Speaker 1: your colleagues as saying, Hey, it's the spouting well that

635
00:36:57,880 --> 00:37:02,319
Speaker 1: gets harpoons. Tell us why we're even having this conversation now.

636
00:37:03,040 --> 00:37:08,080
Speaker 2: Evolution is so important, self improvement, evolution. I think markets change,

637
00:37:08,360 --> 00:37:11,839
Speaker 2: and I think it's important to adapt to survive. As

638
00:37:11,880 --> 00:37:16,840
Speaker 2: the trite saying, we might say, we look at the

639
00:37:16,880 --> 00:37:20,880
Speaker 2: opportunities that we're facing, the business that we're building and

640
00:37:21,000 --> 00:37:23,279
Speaker 2: have built, and they're quite excited about it. And I

641
00:37:23,320 --> 00:37:28,600
Speaker 2: think it's important to communicate for our investors, for perspective,

642
00:37:29,560 --> 00:37:33,879
Speaker 2: partners and people that to attract the best and make

643
00:37:33,920 --> 00:37:36,439
Speaker 2: sure we have the best partners, to make sure our

644
00:37:36,480 --> 00:37:39,719
Speaker 2: story's out there. It's gotten incredibly noisy, if you will,

645
00:37:39,760 --> 00:37:44,719
Speaker 2: when everyone's out there. So to do nothing, I think

646
00:37:44,760 --> 00:37:48,720
Speaker 2: would be a disservice to the people in the business

647
00:37:48,800 --> 00:37:52,640
Speaker 2: and our and our partners. Really, as you know, the

648
00:37:52,680 --> 00:37:56,359
Speaker 2: opportunities you know come to you know, as they say,

649
00:37:56,400 --> 00:37:59,759
Speaker 2: squeaky will gets the grease and so one has to.

650
00:38:00,280 --> 00:38:04,560
Speaker 2: You know, relationships are great. However, at times people you

651
00:38:04,600 --> 00:38:06,960
Speaker 2: know would say, oh, King Street, they still in business,

652
00:38:06,960 --> 00:38:09,640
Speaker 2: you know, because if if you're you're not out there

653
00:38:09,680 --> 00:38:12,520
Speaker 2: with your LinkedIn presence or or I think it's just

654
00:38:12,520 --> 00:38:15,680
Speaker 2: a sign. Look we're not on Instagram, so uh, no

655
00:38:15,800 --> 00:38:18,240
Speaker 2: tiktoks from no no TikTok videos.

656
00:38:18,520 --> 00:38:24,480
Speaker 1: You know, really really interesting. You know, there's some quotes

657
00:38:24,520 --> 00:38:26,920
Speaker 1: of yours that I really like. One of the things

658
00:38:26,960 --> 00:38:30,600
Speaker 1: you had said recently was what kills you in investing

659
00:38:30,719 --> 00:38:34,640
Speaker 1: is a full sense of bravado, I have all the answers,

660
00:38:34,680 --> 00:38:37,600
Speaker 1: I could beat this market, or that sort of approach.

661
00:38:38,239 --> 00:38:42,640
Speaker 1: We say, the work is never done and knowledge reduces risk.

662
00:38:43,160 --> 00:38:52,240
Speaker 2: Explain, well, it's it's from our perspective fairly simple. As

663
00:38:52,239 --> 00:38:57,400
Speaker 2: investors that focus on out of favor, distress, bankruptcy, we

664
00:38:57,480 --> 00:39:04,200
Speaker 2: see failure every day, and we would be incredibly delusional

665
00:39:04,320 --> 00:39:09,400
Speaker 2: to think that without and and sometimes it's no fault

666
00:39:09,440 --> 00:39:13,360
Speaker 2: of the companies, right, it's it's some unforeseen act. It's

667
00:39:13,400 --> 00:39:16,799
Speaker 2: you know, some fraud was perpetrated on it, you know.

668
00:39:18,080 --> 00:39:23,200
Speaker 2: But it's incumbent upon us to be tireless in our effort,

669
00:39:23,719 --> 00:39:30,040
Speaker 2: as there's multitude of competitors out there globally that we

670
00:39:30,160 --> 00:39:33,720
Speaker 2: go up against every day, and if we're not grinding

671
00:39:33,760 --> 00:39:37,360
Speaker 2: it out, then you know there's there's going to be

672
00:39:38,120 --> 00:39:40,400
Speaker 2: a shortfall, and we we don't plan on having that.

673
00:39:41,040 --> 00:39:44,239
Speaker 1: Early in your career, someone would ask you what drives you,

674
00:39:44,360 --> 00:39:49,279
Speaker 1: and your response would be paranoia and insecurity along the

675
00:39:49,320 --> 00:39:49,960
Speaker 1: same lines.

676
00:39:50,280 --> 00:39:54,560
Speaker 2: Yeah, you know, look paranoid insecurity it's it's it's I

677
00:39:54,800 --> 00:39:58,839
Speaker 2: try to be humorous and colorful because investors come in

678
00:39:58,880 --> 00:40:03,120
Speaker 2: and to own on you know that it doesn't always

679
00:40:03,520 --> 00:40:08,160
Speaker 2: keep their attention. I think it's important to look at

680
00:40:08,239 --> 00:40:13,600
Speaker 2: you know, we also talk about probability and you know proportionality,

681
00:40:13,960 --> 00:40:16,279
Speaker 2: and so if you take those four things right, So

682
00:40:16,320 --> 00:40:20,000
Speaker 2: the paranoid insecurity is like, Okay, did I do enough work?

683
00:40:20,320 --> 00:40:23,520
Speaker 2: Does someone else know what can happen that I'm not seeing?

684
00:40:24,200 --> 00:40:27,280
Speaker 2: It keeps that drive to continue to ask those questions.

685
00:40:27,280 --> 00:40:30,680
Speaker 2: As we said, knowledge produces risk because you know, these

686
00:40:30,760 --> 00:40:35,520
Speaker 2: is a moving picture. This is not a still life photograph.

687
00:40:35,760 --> 00:40:41,480
Speaker 2: And so there's many different variables that happen through a business,

688
00:40:41,480 --> 00:40:45,280
Speaker 2: through a cycle, through you lifetime owning, investment, and markets

689
00:40:45,280 --> 00:40:47,480
Speaker 2: to change. So if you think about the number of variables,

690
00:40:48,080 --> 00:40:50,400
Speaker 2: one would be kidding oneself to think that they can

691
00:40:50,920 --> 00:40:54,080
Speaker 2: rest in their laurels. If you will, the work just

692
00:40:54,120 --> 00:40:59,239
Speaker 2: begins when that investment is made and so in the

693
00:40:59,280 --> 00:41:02,040
Speaker 2: paranoid it's ccurity. The only paranoid survivors, they say. And

694
00:41:02,719 --> 00:41:05,479
Speaker 2: so we have to say, did I do enough work?

695
00:41:05,640 --> 00:41:08,839
Speaker 2: Was there something I missed? Keeping one up at night

696
00:41:08,880 --> 00:41:12,319
Speaker 2: that constantly looking at it? I think if you look

697
00:41:12,360 --> 00:41:14,920
Speaker 2: at any piece of work, you know, an artist or

698
00:41:15,239 --> 00:41:18,319
Speaker 2: whomever it is, they put some work, they do some work,

699
00:41:18,320 --> 00:41:19,960
Speaker 2: they put it down, they come back, they look at

700
00:41:19,960 --> 00:41:22,120
Speaker 2: it from another light and oh I missed that. Let me,

701
00:41:22,200 --> 00:41:25,200
Speaker 2: let me continue to refine it. And so investments, in

702
00:41:25,239 --> 00:41:28,840
Speaker 2: our mind are are bodies of work that need to

703
00:41:28,840 --> 00:41:33,960
Speaker 2: be continually refined because the elements, if you will, continue

704
00:41:34,040 --> 00:41:37,920
Speaker 2: to challenge it. And then you look at probability and proportionality.

705
00:41:38,400 --> 00:41:40,799
Speaker 2: One has to be careful on that right because if

706
00:41:40,800 --> 00:41:45,960
Speaker 2: you say, well, you know this hurricane is going to happen,

707
00:41:46,160 --> 00:41:49,839
Speaker 2: you know the tragic hurricanes that we've had currently and

708
00:41:50,200 --> 00:41:54,439
Speaker 2: just recently. Okay, if you had said never going to happen,

709
00:41:54,480 --> 00:41:56,080
Speaker 2: we haven't had for a while, and if it happens,

710
00:41:56,080 --> 00:42:00,600
Speaker 2: it's it doesn't create much damage. Well, what's the probability

711
00:42:00,680 --> 00:42:03,360
Speaker 2: that that could could outcome? Now, if you look at

712
00:42:03,440 --> 00:42:06,080
Speaker 2: geological faults and you're buying a piece of property, and

713
00:42:06,120 --> 00:42:08,880
Speaker 2: you're building a data center, for example, and you say, well,

714
00:42:08,880 --> 00:42:12,160
Speaker 2: one in one point six million or billion years that

715
00:42:12,680 --> 00:42:15,600
Speaker 2: you know, I feel good about that, right. But if

716
00:42:15,640 --> 00:42:18,160
Speaker 2: you're down in Florida and you're saying I'm not going

717
00:42:18,200 --> 00:42:20,759
Speaker 2: to buy flood insurance now, question can you get it

718
00:42:20,800 --> 00:42:24,520
Speaker 2: these days for it? Right? But like, think about the

719
00:42:24,520 --> 00:42:26,839
Speaker 2: people the tragedy happened in North Carolina up and then

720
00:42:27,000 --> 00:42:28,680
Speaker 2: you know, they didn't think they'd need flood insurance.

721
00:42:28,680 --> 00:42:32,080
Speaker 1: They were deep inland and at a fairly high elevation,

722
00:42:32,200 --> 00:42:33,680
Speaker 1: and yet they still got flooded out.

723
00:42:33,840 --> 00:42:37,880
Speaker 2: Right. So these are things in terms of proportionality and probability,

724
00:42:38,800 --> 00:42:41,880
Speaker 2: and proportionality is okay. You can create a scenario with

725
00:42:41,920 --> 00:42:45,520
Speaker 2: any investment where you'd never make the investment. You could say, well,

726
00:42:45,520 --> 00:42:47,640
Speaker 2: that could happen, and then you could say to certain,

727
00:42:47,680 --> 00:42:49,480
Speaker 2: well it's one in a million years and it's two

728
00:42:49,520 --> 00:42:52,120
Speaker 2: percent of the business. Is that really going to cause

729
00:42:52,120 --> 00:42:55,200
Speaker 2: you to pass on that investment? So that's the constant

730
00:42:55,560 --> 00:42:59,840
Speaker 2: interplay that we feel is critical to arrive. You know,

731
00:43:00,000 --> 00:43:01,879
Speaker 2: the best decision you can make, and again the best

732
00:43:01,960 --> 00:43:05,040
Speaker 2: things you make today tomorrow look at it again and say,

733
00:43:05,080 --> 00:43:05,799
Speaker 2: oh I screwed up.

734
00:43:07,640 --> 00:43:10,720
Speaker 1: You mentioned earlier you wanted to be a little public

735
00:43:10,840 --> 00:43:14,000
Speaker 1: because you want to attract and retain the best employees.

736
00:43:14,480 --> 00:43:17,200
Speaker 1: King Street has about two hundred and fifty people working

737
00:43:17,239 --> 00:43:20,800
Speaker 1: for them, seventy of whom have been with the firm

738
00:43:21,360 --> 00:43:24,279
Speaker 1: for ten or more years. That's pretty unusual in the

739
00:43:24,280 --> 00:43:26,839
Speaker 1: hedge fund world. Tell us a little bit about the

740
00:43:26,880 --> 00:43:28,640
Speaker 1: ten year club you guys created.

741
00:43:29,960 --> 00:43:33,160
Speaker 2: Well, it really again, as I said at the outset,

742
00:43:33,200 --> 00:43:39,320
Speaker 2: it's celebrating the people that comprise King Street, as I

743
00:43:39,360 --> 00:43:43,400
Speaker 2: thought from the beginning, and talk to other people in leadership.

744
00:43:44,040 --> 00:43:48,040
Speaker 2: Remember that your greatest asset goes down the elevator every

745
00:43:48,120 --> 00:43:50,080
Speaker 2: day and you hope they come back up the next day,

746
00:43:50,560 --> 00:43:57,879
Speaker 2: and so one has to again celebrate the teamwork. And

747
00:43:57,920 --> 00:44:00,640
Speaker 2: that's the approach that we have a King Street talked

748
00:44:00,640 --> 00:44:05,880
Speaker 2: about the overlapping circles and the ability to work on

749
00:44:05,960 --> 00:44:08,160
Speaker 2: different aspects of the business. But it's very much a

750
00:44:08,200 --> 00:44:12,160
Speaker 2: team and we look at the what what the operation team,

751
00:44:12,600 --> 00:44:15,359
Speaker 2: the investment team, and the training team. There's a lot

752
00:44:15,400 --> 00:44:19,720
Speaker 2: of collaboration that is constantly occurring, and people get paid

753
00:44:20,280 --> 00:44:23,399
Speaker 2: on the well being of the overall firm, and so

754
00:44:23,680 --> 00:44:28,759
Speaker 2: it forces that teamwork and collaboration, and I think it's

755
00:44:28,800 --> 00:44:33,120
Speaker 2: important to celebrate events. You know, we we have outings,

756
00:44:34,000 --> 00:44:39,160
Speaker 2: we have different groups celebating our women, our diversity, our

757
00:44:39,320 --> 00:44:42,319
Speaker 2: charitable pursuits, or holiday party. We still have the old

758
00:44:42,320 --> 00:44:46,200
Speaker 2: school holiday party that we do every year. I think

759
00:44:46,239 --> 00:44:51,080
Speaker 2: the summer outings, et cetera. These are all we believe

760
00:44:51,239 --> 00:44:54,680
Speaker 2: part of the building culture. You know, everyone the month end,

761
00:44:54,880 --> 00:44:58,920
Speaker 2: everyone's birthday gets celebrated with you know, we had them

762
00:44:59,280 --> 00:45:01,440
Speaker 2: happen to every day. So we say, wait, we'll just

763
00:45:01,440 --> 00:45:04,400
Speaker 2: to once a month all the February birthdays you know which,

764
00:45:04,640 --> 00:45:06,480
Speaker 2: and then you get to vote on it. So the

765
00:45:06,560 --> 00:45:09,960
Speaker 2: little things that I think create the family, and you

766
00:45:10,000 --> 00:45:13,560
Speaker 2: spend a lot of time with people, and if there's

767
00:45:13,600 --> 00:45:21,279
Speaker 2: not that recognition of individuality and the effort put forth,

768
00:45:21,560 --> 00:45:27,440
Speaker 2: then it's a miss. We believe it's again to celebrate together.

769
00:45:27,560 --> 00:45:29,640
Speaker 2: What we've achieved is critical.

770
00:45:30,160 --> 00:45:34,240
Speaker 1: I've heard a number of executives complain or at least

771
00:45:34,320 --> 00:45:38,440
Speaker 1: raise the issue. It was very difficult to either create

772
00:45:38,600 --> 00:45:42,239
Speaker 1: or maintain a corporate culture during the pandemic work from

773
00:45:42,280 --> 00:45:45,960
Speaker 1: home remote. How have you guys navigated that and how

774
00:45:46,000 --> 00:45:50,480
Speaker 1: important is corporate culture to a fund like yours?

775
00:45:51,360 --> 00:45:58,319
Speaker 2: Well, culture is becomes what it becomes. It's you just

776
00:45:58,600 --> 00:46:03,640
Speaker 2: everyone hopes that they're culture is sustainable and constructive and

777
00:46:03,719 --> 00:46:10,480
Speaker 2: not toxic, and so we strive to make sure there's

778
00:46:10,560 --> 00:46:14,799
Speaker 2: that communication openness. We do a lot of surveys. We've

779
00:46:15,000 --> 00:46:17,920
Speaker 2: always trying to better our scores. It's self improvement we

780
00:46:17,960 --> 00:46:20,200
Speaker 2: focus on. If you go back to a pandemic, it

781
00:46:20,239 --> 00:46:22,600
Speaker 2: was hard, right because you're on zoom and so you

782
00:46:22,640 --> 00:46:27,560
Speaker 2: know holiday party on zoom or you know scavenger hunts

783
00:46:27,560 --> 00:46:31,840
Speaker 2: on zoom. It was how do we create these ties

784
00:46:31,920 --> 00:46:36,840
Speaker 2: that bind us over what It was incredibly challenging personally

785
00:46:36,840 --> 00:46:41,240
Speaker 2: and professionally for a lot of people. And frankly, the markets,

786
00:46:41,360 --> 00:46:43,120
Speaker 2: as we all know back in the twenty twenty as

787
00:46:43,120 --> 00:46:47,480
Speaker 2: our reference earlier, were brutal and working incredible amount of hours.

788
00:46:48,360 --> 00:46:51,160
Speaker 2: The family challenges that people had with their kids at

789
00:46:51,160 --> 00:46:53,840
Speaker 2: home were trapped in different places and so and the

790
00:46:53,960 --> 00:47:00,120
Speaker 2: sicknesses and loss of life. So those are obviously in

791
00:47:00,160 --> 00:47:03,640
Speaker 2: any regular time important, but we believe, you know, corporate

792
00:47:03,680 --> 00:47:08,080
Speaker 2: culture has to play its role, uh and not to replace,

793
00:47:08,160 --> 00:47:11,920
Speaker 2: but to be a part of it, to be supportive

794
00:47:12,000 --> 00:47:15,080
Speaker 2: of of people. But it's it's and also think about

795
00:47:15,160 --> 00:47:18,920
Speaker 2: like there's there's We have offices, as you've indicated in

796
00:47:19,600 --> 00:47:24,200
Speaker 2: the US and Europe and Asia Middle East. How do

797
00:47:24,280 --> 00:47:28,960
Speaker 2: we create that consistency, How do we create that that

798
00:47:29,520 --> 00:47:33,879
Speaker 2: fabric that runs throughout And it's a lot of times

799
00:47:33,920 --> 00:47:37,680
Speaker 2: we'll do our similar uh, you know, furniture and the like,

800
00:47:37,760 --> 00:47:39,400
Speaker 2: so they feel like, oh, this feels like a King

801
00:47:39,440 --> 00:47:42,440
Speaker 2: Street office. Things of that nature. Similar events and uh

802
00:47:42,560 --> 00:47:45,600
Speaker 2: and the swag, if you will, that binds people.

803
00:47:46,160 --> 00:47:49,880
Speaker 1: So your your co founder and partner of Francis BEYONDI

804
00:47:50,480 --> 00:47:55,680
Speaker 1: retired a couple of years ago. Two questions about Francis

805
00:47:56,080 --> 00:47:58,680
Speaker 1: First is he is he still sitting on the Yelle

806
00:47:58,920 --> 00:48:03,360
Speaker 1: investment committee or has he fully retired from asset management?

807
00:48:03,640 --> 00:48:06,480
Speaker 1: And then second, you know, what was that transition? Like,

808
00:48:06,560 --> 00:48:09,960
Speaker 1: suddenly your co founder is no longer there every day?

809
00:48:10,040 --> 00:48:11,520
Speaker 1: How did you adjust to that?

810
00:48:12,640 --> 00:48:16,480
Speaker 2: Well, I believe the website's correct. He's still at Yale.

811
00:48:16,719 --> 00:48:20,759
Speaker 2: I know I've spoken to him recently, but I know

812
00:48:20,880 --> 00:48:24,359
Speaker 2: he's got a lot of pursuits and quite busy and

813
00:48:24,640 --> 00:48:27,439
Speaker 2: with his family, and I think he's enjoying a well

814
00:48:27,480 --> 00:48:31,960
Speaker 2: deserved time. He and I had an incredible twenty five

815
00:48:32,040 --> 00:48:35,640
Speaker 2: years together. We call ourselves you know old married couple

816
00:48:35,800 --> 00:48:38,040
Speaker 2: or you know brothers of King Street whatever they call

817
00:48:38,120 --> 00:48:41,600
Speaker 2: us and two Guys Capital, two guys Capitol, right, so,

818
00:48:41,960 --> 00:48:44,239
Speaker 2: which is funnily enough, my brother named that. We grew

819
00:48:44,320 --> 00:48:46,680
Speaker 2: up in New Jersey and in East Brunswick and there

820
00:48:46,760 --> 00:48:49,960
Speaker 2: was a two guys which.

821
00:48:49,800 --> 00:48:54,280
Speaker 1: Is giant Alexander Kolder on the outside of that building.

822
00:48:54,360 --> 00:48:56,640
Speaker 1: Am I remembering that correctly? In Hackensack?

823
00:48:56,840 --> 00:48:59,320
Speaker 2: Well, well, I was from I grew up in East Buswick,

824
00:48:59,400 --> 00:49:01,759
Speaker 2: so I don't know about the Hackensack one, but in

825
00:49:01,800 --> 00:49:05,440
Speaker 2: the one it was a discount store and went bankrupt

826
00:49:05,440 --> 00:49:09,760
Speaker 2: in the eighties, which Fernado was part of the Portfolo

827
00:49:09,920 --> 00:49:14,440
Speaker 2: became then the so if it's funny history. But my

828
00:49:14,520 --> 00:49:17,680
Speaker 2: brother recently gave me a shirt you know, two Guys Capital,

829
00:49:17,719 --> 00:49:20,960
Speaker 2: and we've got on a website somewhere. But anyway, so

830
00:49:21,000 --> 00:49:24,839
Speaker 2: I had a saving events there, but no so, as

831
00:49:24,880 --> 00:49:28,719
Speaker 2: I said earlier, having this team and this partners with

832
00:49:28,840 --> 00:49:33,440
Speaker 2: us over thirteen years on average and having mds thirty

833
00:49:33,480 --> 00:49:35,840
Speaker 2: eight plus mds with us over ten years on average,

834
00:49:36,160 --> 00:49:40,760
Speaker 2: we've had a very deep, deep bench and fortunate to

835
00:49:41,120 --> 00:49:44,840
Speaker 2: have incredible depth and breadth to the organization where we

836
00:49:44,880 --> 00:49:48,360
Speaker 2: didn't miss a beat, and you know that's that's something

837
00:49:48,440 --> 00:49:52,760
Speaker 2: I think testament to the culture that fran and I

838
00:49:52,800 --> 00:49:56,320
Speaker 2: built the first twenty five years, which we hopeful we'll

839
00:49:56,960 --> 00:49:58,680
Speaker 2: continue for many, many years to come.

840
00:49:59,200 --> 00:50:02,480
Speaker 1: Let's jump to our favorite questions that we ask all

841
00:50:02,520 --> 00:50:06,640
Speaker 1: of our guests, starting with what have you been watching

842
00:50:06,680 --> 00:50:09,040
Speaker 1: these days? What's been keeping you entertained?

843
00:50:09,520 --> 00:50:12,560
Speaker 2: Well, I've been watching the Mets a bit lately. I

844
00:50:12,600 --> 00:50:14,160
Speaker 2: went to my first Mets game and.

845
00:50:14,080 --> 00:50:16,440
Speaker 1: In October, which I can't remember the last time you

846
00:50:16,480 --> 00:50:19,760
Speaker 1: could watch the Mets in October having grown up online.

847
00:50:19,840 --> 00:50:22,160
Speaker 2: Yeah, well, yeah, I mean I grew up in New

848
00:50:22,239 --> 00:50:25,359
Speaker 2: Jersey and my first Met game was nineteen sixty nine,

849
00:50:25,360 --> 00:50:28,279
Speaker 2: which when they went in the World Series. Yeah, from

850
00:50:28,320 --> 00:50:32,160
Speaker 2: a despicable like worst team ever. I think Chicago White

851
00:50:32,160 --> 00:50:35,960
Speaker 2: Sox had taken that over. But anyway, so we went,

852
00:50:36,800 --> 00:50:39,279
Speaker 2: you know there, watch some of that. Also, I'm a

853
00:50:39,640 --> 00:50:41,960
Speaker 2: Knicks fan. Is went to Villanova and they call him

854
00:50:41,960 --> 00:50:46,240
Speaker 2: the Nova Knicks. Funny story. Years ago, I was fortunate

855
00:50:46,320 --> 00:50:49,600
Speaker 2: enough Jay Wright, who was the coach of Villanova, invited

856
00:50:49,640 --> 00:50:53,920
Speaker 2: me to speak to the team before the start of

857
00:50:53,960 --> 00:50:57,560
Speaker 2: the season. They were in New York, and you know,

858
00:50:57,719 --> 00:51:00,359
Speaker 2: talking to the team, and I, you know, I said

859
00:51:00,360 --> 00:51:03,319
Speaker 2: to him, guys, I'm really really nervous here. You know,

860
00:51:03,800 --> 00:51:07,759
Speaker 2: twenty eighteen, they were reigning national champions and if you

861
00:51:07,760 --> 00:51:09,960
Speaker 2: guys don't win the championship like they're, don't look at

862
00:51:10,040 --> 00:51:12,200
Speaker 2: me and blame me. And they were kind of looking

863
00:51:12,200 --> 00:51:16,920
Speaker 2: at me quizzically. And I picked one of the young players,

864
00:51:18,000 --> 00:51:22,000
Speaker 2: young freshmen, and I sat down right across from right

865
00:51:22,080 --> 00:51:23,759
Speaker 2: up in his face, and I said, you know, look,

866
00:51:23,920 --> 00:51:26,960
Speaker 2: I'm really nervous. I got this big meeting and you

867
00:51:27,080 --> 00:51:31,400
Speaker 2: got to help me, you know, can you what do

868
00:51:31,440 --> 00:51:34,640
Speaker 2: you say to me? You know? And he had like

869
00:51:34,719 --> 00:51:36,879
Speaker 2: deer in the headlights. Look, he was eighteen year old kid.

870
00:51:36,880 --> 00:51:39,279
Speaker 2: He was sort of like this, you know, old guy

871
00:51:39,400 --> 00:51:43,480
Speaker 2: with supposedly you know, successful guy coming in begging me

872
00:51:43,520 --> 00:51:48,840
Speaker 2: for advice, you know. And he said like quizzically, like

873
00:51:49,800 --> 00:51:52,920
Speaker 2: you can do it. And I said yeah. And it

874
00:51:53,000 --> 00:51:55,959
Speaker 2: was funny watching the faces of all the older upper

875
00:51:55,960 --> 00:51:57,680
Speaker 2: class and they were laughing because they knew I was

876
00:51:57,760 --> 00:52:00,719
Speaker 2: just trying to see and I said, and I said,

877
00:52:01,400 --> 00:52:03,520
Speaker 2: it was interesting because Jay Wright had called me like

878
00:52:03,560 --> 00:52:07,319
Speaker 2: four times in advance because it was so but you

879
00:52:07,360 --> 00:52:10,480
Speaker 2: go back to leadership and culture. It was so important

880
00:52:10,719 --> 00:52:12,680
Speaker 2: with you want to make sure I was what message

881
00:52:12,680 --> 00:52:15,279
Speaker 2: I was going to give, And I said to the team,

882
00:52:15,360 --> 00:52:17,839
Speaker 2: I said, see, you all can be leaders. You all

883
00:52:17,880 --> 00:52:20,640
Speaker 2: can inspire. And when you're on the court and Jay

884
00:52:20,760 --> 00:52:23,880
Speaker 2: is you know fifty hundred feet away, who's going to

885
00:52:23,960 --> 00:52:26,600
Speaker 2: inspire and lead each other? And you can't just rely

886
00:52:26,680 --> 00:52:28,680
Speaker 2: on the coach. You got to look to each other

887
00:52:28,719 --> 00:52:32,319
Speaker 2: for leadership and to sponsor. And that's what when I

888
00:52:32,360 --> 00:52:34,160
Speaker 2: talked to my team and how do we have the culture?

889
00:52:34,239 --> 00:52:37,560
Speaker 2: How do we continually have that leadership If the partner

890
00:52:37,640 --> 00:52:39,600
Speaker 2: is not in the room, who's going to take that

891
00:52:39,640 --> 00:52:43,880
Speaker 2: mantle and who's going to push forward? And so on

892
00:52:43,960 --> 00:52:46,600
Speaker 2: the things that I ingest. I got to have a

893
00:52:46,640 --> 00:52:48,400
Speaker 2: lot of intake to have outtake, right because I got

894
00:52:48,440 --> 00:52:50,160
Speaker 2: to do a lot of meetings. So I got to

895
00:52:50,200 --> 00:52:54,359
Speaker 2: find that time to refill the tank with information. And

896
00:52:54,440 --> 00:52:58,399
Speaker 2: so you know, on stuff I'll watch, whether it's if

897
00:52:58,400 --> 00:53:02,320
Speaker 2: it's not sports, it will be some you know, mindless

898
00:53:02,360 --> 00:53:04,600
Speaker 2: spies things I like sort of because it's I like

899
00:53:04,640 --> 00:53:06,520
Speaker 2: to travel and see things around the world and different

900
00:53:06,560 --> 00:53:10,600
Speaker 2: cultures and understand that and history, and so that usually

901
00:53:10,719 --> 00:53:12,680
Speaker 2: wraps up and say a spy things.

902
00:53:13,239 --> 00:53:16,160
Speaker 1: I'm gonna give you a recommendation only because I watched

903
00:53:16,160 --> 00:53:18,919
Speaker 1: this on the flight back from Europe and it's dead

904
00:53:19,000 --> 00:53:23,720
Speaker 1: center of what you're talking about. The Ministry of Ungentlemanly

905
00:53:23,840 --> 00:53:31,439
Speaker 1: Warfare is essentially Churchill's Special Teams creation as a way

906
00:53:31,480 --> 00:53:35,759
Speaker 1: of fighting Nazi submarines during World War Two. If you

907
00:53:36,000 --> 00:53:40,920
Speaker 1: like global spy stuff and history, this is right in

908
00:53:40,960 --> 00:53:41,720
Speaker 1: your sweet timet.

909
00:53:41,960 --> 00:53:44,200
Speaker 2: I wrote it down and we'll put it on the

910
00:53:44,239 --> 00:53:44,879
Speaker 2: list for sure.

911
00:53:45,400 --> 00:53:50,120
Speaker 1: Absolutely, and again we're recording this in October. I can't

912
00:53:50,120 --> 00:53:52,480
Speaker 1: remember the last time I was this excited about a

913
00:53:52,640 --> 00:53:59,200
Speaker 1: next season, Like, even injured, really distinguished themselves last year's playoffs.

914
00:53:59,200 --> 00:54:02,000
Speaker 1: You know you could see, hey, if they were full strength,

915
00:54:02,200 --> 00:54:06,640
Speaker 1: they could have gone pretty deep into uh to the finals.

916
00:54:07,160 --> 00:54:11,520
Speaker 2: Yeah, I'm super excited for this season and and sort

917
00:54:11,520 --> 00:54:13,600
Speaker 2: of seeing what they could do as well.

918
00:54:14,080 --> 00:54:17,880
Speaker 1: So you mentioned some of your mentors. Tell us about

919
00:54:17,960 --> 00:54:20,200
Speaker 1: the people who helped shape your career.

920
00:54:21,160 --> 00:54:24,520
Speaker 2: Well, you know, I mentioned Jimmy Kine and Vince.

921
00:54:24,320 --> 00:54:27,080
Speaker 1: Tc They were the Vince Tincy was where.

922
00:54:27,000 --> 00:54:31,600
Speaker 2: Vincent tc uh is on the number of boards to

923
00:54:31,640 --> 00:54:36,439
Speaker 2: this days. He was Banking Commissioner State of New York.

924
00:54:36,480 --> 00:54:40,080
Speaker 2: He was Urban Development chair. He had been a tax lawyer,

925
00:54:40,160 --> 00:54:43,200
Speaker 2: he was the commodities trader. So he had this incredible

926
00:54:43,280 --> 00:54:48,480
Speaker 2: varied career and life and quite successful entrepreneur, and so

927
00:54:48,560 --> 00:54:51,799
Speaker 2: he's always a wealth information contacts and always great great

928
00:54:51,800 --> 00:54:55,880
Speaker 2: advice and perspective. And Jimmy of course ran Barons Stearns

929
00:54:55,880 --> 00:55:01,560
Speaker 2: obviously unfortunate ending to a storied career, but he was

930
00:55:02,000 --> 00:55:04,160
Speaker 2: very helpful in giving great advice.

931
00:55:04,040 --> 00:55:09,320
Speaker 1: Right legendary CEO of Bear Stearns. Let's talk about some books.

932
00:55:09,360 --> 00:55:11,240
Speaker 1: What are your favorites? What are you reading currently?

933
00:55:12,200 --> 00:55:15,280
Speaker 2: I would say book wise, just let's say a genre

934
00:55:15,680 --> 00:55:18,760
Speaker 2: books because I listened to them. I'm not a big

935
00:55:19,239 --> 00:55:21,920
Speaker 2: reader because I read so much in terms of research

936
00:55:22,000 --> 00:55:25,600
Speaker 2: and consultants and sell side and our own internal research,

937
00:55:26,080 --> 00:55:30,480
Speaker 2: plus the papers, et cetera. And I try to ingest

938
00:55:30,520 --> 00:55:34,319
Speaker 2: a lot there and then content deeper content on the

939
00:55:34,360 --> 00:55:37,839
Speaker 2: weekends and then you know, just number of emails et

940
00:55:37,840 --> 00:55:43,080
Speaker 2: cetera you go through. So I'll listen to different whether

941
00:55:43,120 --> 00:55:48,279
Speaker 2: it's leadership or let's self help type things, but it's

942
00:55:48,320 --> 00:55:51,960
Speaker 2: more about I think, the self improvement and so how

943
00:55:51,960 --> 00:55:54,680
Speaker 2: do you get the most out of life if you will?

944
00:55:54,680 --> 00:55:58,680
Speaker 2: There's I love hacks if you will, in terms of

945
00:55:58,719 --> 00:56:02,439
Speaker 2: health hacks or you know, efficiency hacks. I think that's

946
00:56:02,600 --> 00:56:06,200
Speaker 2: qurrically important technology to utilize to its followers. So that

947
00:56:06,280 --> 00:56:10,920
Speaker 2: that's sort of the focal point. Let's talk and bye

948
00:56:11,000 --> 00:56:14,560
Speaker 2: on that. Just sorry is I found that blinkst is

949
00:56:14,960 --> 00:56:18,840
Speaker 2: a great thing to utilize because the website, well, blinkest

950
00:56:18,920 --> 00:56:23,080
Speaker 2: is sort of the reader's digest version of books, because

951
00:56:23,120 --> 00:56:26,120
Speaker 2: most books they have a concept, interesting concept, and they

952
00:56:26,160 --> 00:56:30,040
Speaker 2: spend two three hundred pages saying same thing seven different ways,

953
00:56:30,480 --> 00:56:33,000
Speaker 2: you know, you know, trying to convince you that that

954
00:56:33,239 --> 00:56:35,600
Speaker 2: versus blink is like, all right, here's the concept. You're like, okay,

955
00:56:35,600 --> 00:56:36,720
Speaker 2: it makes sense. Interesting.

956
00:56:37,120 --> 00:56:41,399
Speaker 1: And next, one of my partners likes to say most

957
00:56:41,400 --> 00:56:45,680
Speaker 1: books should be magazine articles, most magazine articles should be tweets,

958
00:56:45,680 --> 00:56:48,799
Speaker 1: and most tweets should be deleted. And that's his same

959
00:56:48,920 --> 00:56:52,439
Speaker 1: same sort of concepts as blinkst. So now we're down

960
00:56:52,440 --> 00:56:56,680
Speaker 1: to our final two questions. What sort of advice would

961
00:56:56,680 --> 00:57:00,040
Speaker 1: you give to a recent college grad interested in a

962
00:57:00,080 --> 00:57:02,400
Speaker 1: career and either stressed or distressed investing.

963
00:57:04,040 --> 00:57:10,880
Speaker 2: Well, there's the critical importance of analytical rigor, and so

964
00:57:12,040 --> 00:57:15,759
Speaker 2: if you're recent college gradu you can't necessarily go back

965
00:57:15,800 --> 00:57:18,360
Speaker 2: and take the courses that would be helpful. And so

966
00:57:18,800 --> 00:57:21,640
Speaker 2: it's if you see some of the Ivy League kids,

967
00:57:22,640 --> 00:57:27,480
Speaker 2: they don't have the accounting background. For example. I think

968
00:57:27,520 --> 00:57:32,280
Speaker 2: critical thinking is important. I think having some understanding of

969
00:57:32,960 --> 00:57:36,880
Speaker 2: the legal framework as that's become has always become such

970
00:57:36,880 --> 00:57:41,720
Speaker 2: a big deal to get into let's say stress distress

971
00:57:41,760 --> 00:57:46,680
Speaker 2: out of favor. Look, there hasn't been as much interest,

972
00:57:46,960 --> 00:57:49,840
Speaker 2: frankly because the tech world has been such a you know,

973
00:57:50,440 --> 00:57:55,560
Speaker 2: robust world, and so it's important again, as I said,

974
00:57:55,600 --> 00:57:59,280
Speaker 2: to work in the in the credit business to understand

975
00:57:59,760 --> 00:58:03,560
Speaker 2: the those covenants, understand those companies, to get a generalist

976
00:58:03,600 --> 00:58:07,720
Speaker 2: type experience, because one never knows is it the utility sector,

977
00:58:07,760 --> 00:58:11,600
Speaker 2: is that the energy sector, Is it the TMT sector

978
00:58:12,120 --> 00:58:16,200
Speaker 2: that will have issues or asbestos or you know, different issues,

979
00:58:16,240 --> 00:58:17,920
Speaker 2: and then you're like, oh, I'm an expert in this.

980
00:58:18,080 --> 00:58:19,760
Speaker 2: But at the end of the day, if you understand

981
00:58:19,760 --> 00:58:24,440
Speaker 2: casual generation, you understand balance sheets, you understand legal framework accounting,

982
00:58:25,320 --> 00:58:30,320
Speaker 2: then you can kind of learn most valuations frameworks.

983
00:58:30,840 --> 00:58:33,880
Speaker 1: Really interesting and our final question, what do you know

984
00:58:33,960 --> 00:58:37,520
Speaker 1: about the world of distressed credit today you wish you

985
00:58:37,560 --> 00:58:40,000
Speaker 1: knew back in nineteen eighty seven when you were first

986
00:58:40,000 --> 00:58:40,760
Speaker 1: getting started.

987
00:58:43,000 --> 00:58:46,840
Speaker 2: Well, I guess having the hindsight is twenty twenty perspective

988
00:58:46,960 --> 00:58:51,080
Speaker 2: on markets in general. I think it's important, you know,

989
00:58:51,160 --> 00:58:57,160
Speaker 2: pivoting globally. Also, the let's say, the broad product suite

990
00:58:57,200 --> 00:59:03,360
Speaker 2: that we now have, I think are are are super interesting, informative.

991
00:59:04,560 --> 00:59:08,560
Speaker 2: I I I never would have thought that we would

992
00:59:08,640 --> 00:59:13,160
Speaker 2: rebound so easily and quickly in so many different difficult times.

993
00:59:13,600 --> 00:59:16,760
Speaker 2: And that that kind of me speaks to the resiliency,

994
00:59:17,360 --> 00:59:21,000
Speaker 2: you know, of of markets and and the resilt you know,

995
00:59:21,040 --> 00:59:25,240
Speaker 2: the commitment that the governments et cetera had to uh,

996
00:59:25,840 --> 00:59:28,120
Speaker 2: you know, bail us out time and time again. And

997
00:59:28,160 --> 00:59:32,000
Speaker 2: so now thirty five plus trillion debt we got, you know,

998
00:59:32,920 --> 00:59:35,600
Speaker 2: massive amount of debt and to show for it since

999
00:59:35,880 --> 00:59:38,840
Speaker 2: eight Uh you know, we'll see how it all works out.

1000
00:59:39,120 --> 00:59:45,680
Speaker 2: But I think it's it's really the the sophistication UH

1001
00:59:45,880 --> 00:59:52,080
Speaker 2: and innovative nature of let's say, security design UH has

1002
00:59:52,160 --> 00:59:56,080
Speaker 2: been enabled to have the flexibility of capital that has

1003
00:59:56,320 --> 00:59:59,840
Speaker 2: been transformative certainly for the US count markets and then

1004
01:00:00,240 --> 01:00:03,520
Speaker 2: then finds its way into other markets. But it enables

1005
01:00:03,840 --> 01:00:08,240
Speaker 2: you know, people say traffickers and tragedy. You know, it's

1006
01:00:08,320 --> 01:00:10,680
Speaker 2: it's interesting. We had, you know, one of one of

1007
01:00:10,720 --> 01:00:14,000
Speaker 2: the investors going to allocate ESG and he said, well,

1008
01:00:14,160 --> 01:00:17,520
Speaker 2: you know, distress, it's not ESG friendly. I said, well,

1009
01:00:17,680 --> 01:00:20,880
Speaker 2: we're one hundred percent of ESG. We're trying to have

1010
01:00:21,000 --> 01:00:24,280
Speaker 2: companies help companies survive and you know they have Batty

1011
01:00:24,360 --> 01:00:28,120
Speaker 2: is Chusco. We're trying to transform them into into productive

1012
01:00:28,840 --> 01:00:32,160
Speaker 2: companies that are you know, doing better think about environment.

1013
01:00:32,200 --> 01:00:34,200
Speaker 2: They might have had some spill that they had a

1014
01:00:34,200 --> 01:00:37,240
Speaker 2: big liability from, or the governance was bad. That's why

1015
01:00:37,280 --> 01:00:39,520
Speaker 2: they were, you know, in distress because it's some guy

1016
01:00:39,520 --> 01:00:42,560
Speaker 2: who's stealing money or what have you. So you know,

1017
01:00:42,560 --> 01:00:44,120
Speaker 2: there's a number of things that we've been able to

1018
01:00:44,200 --> 01:00:48,000
Speaker 2: prove bon bringing new management or cleaning up environmental issues

1019
01:00:48,000 --> 01:00:50,200
Speaker 2: that then the company valuation reabount it.

1020
01:00:50,800 --> 01:00:53,440
Speaker 1: Thank you, Brian for being so generous with your time.

1021
01:00:53,560 --> 01:00:57,560
Speaker 1: We have been speaking with Brian Higgins. He is co

1022
01:00:57,640 --> 01:01:01,800
Speaker 1: founder and managing partner at King Street. If you enjoy

1023
01:01:01,880 --> 01:01:05,280
Speaker 1: this conversation, check out any of the past five hundred

1024
01:01:05,360 --> 01:01:09,160
Speaker 1: or so discussions we've had over the past ten years.

1025
01:01:09,600 --> 01:01:14,480
Speaker 1: You can find those at iTunes, Spotify, Bloomberg YouTube, wherever

1026
01:01:14,560 --> 01:01:17,640
Speaker 1: you find your favorite podcast, and be sure and check

1027
01:01:17,640 --> 01:01:21,400
Speaker 1: out my new podcast, At the Money, short ten minute

1028
01:01:21,440 --> 01:01:27,480
Speaker 1: conversations with experts about specific topics involving your money, earning it,

1029
01:01:27,640 --> 01:01:31,640
Speaker 1: spending it, and most importantly, investing it. At the Money

1030
01:01:31,720 --> 01:01:35,360
Speaker 1: wherever you find your favorite podcasts or in the Masters

1031
01:01:35,440 --> 01:01:38,120
Speaker 1: and Business feed. I would be remiss if I did

1032
01:01:38,120 --> 01:01:41,440
Speaker 1: not thank the crack team that helps put these conversations

1033
01:01:41,440 --> 01:01:44,959
Speaker 1: together each week. John Wasserman is my audio engineer. Anna

1034
01:01:45,040 --> 01:01:48,160
Speaker 1: Lucas my producer. Sean Russo is my head of research.

1035
01:01:48,520 --> 01:01:53,200
Speaker 1: Sage Bauman is the head of Bloomberg Podcasts. I'm Barry Retults.

1036
01:01:53,440 --> 01:01:58,680
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.

1037
01:02:00,160 --> 01:02:02,000
Speaker 2: What Baths