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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This He's Master's in

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Speaker 1: Business with Barry Ritholts on Bloomberg Radio.

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Speaker 2: This week on the podcast, another extra special guest, Matt

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Speaker 2: Sherwin is co founder and chief investment officer at Merrek Capital.

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Speaker 2: He'd previously spent sixteen years at JP Morgan Chase and

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Speaker 2: then a bunch of years at City Group beforehand, running

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Speaker 2: all sorts of spread markets, head of securitized product, lots

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Speaker 2: of CIO and risk management titles. I came to no

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Speaker 2: Maerk through a live event we did Atloomberg last year.

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Speaker 2: I found that his approached to credit and trading is

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Speaker 2: absolutely fascinating, and what Marek is doing is really quite interesting.

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Speaker 2: I thought the conversation was brilliant, and I think you

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Speaker 2: will also with no further ado, my conversation with Merreck Capitals.

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Speaker 2: Matt Sherwin, Matt Scharnwin, Welcome to Bloomberg.

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Speaker 3: Thanks for having me. This is exciting. That was kind

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Speaker 3: of That was a bigger wind up than I was.

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Speaker 2: I like, I like a big wind up because it

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Speaker 2: gives us an opportunity to roll back to the beginning

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Speaker 2: and say, all right, Bachelors and economics from the University

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Speaker 2: of Pennsylvania. What was the original career plan. I don't

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Speaker 2: imagine people going to college and saying I want to

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Speaker 2: be the head of global spread markets.

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Speaker 3: No. But that's super interesting because our oldest is a

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Speaker 3: sophomore in college now and he's in the business school

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Speaker 3: to American and I was just talking to him yesterday

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Speaker 3: and he said, I'm now in I think they call

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Speaker 3: it like finance for Business. I really liked this new

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Speaker 3: class and I said to him, that remind finds me

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Speaker 3: so well of when I was in undergrad business school

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Speaker 3: and I did the first couple of semesters at ECON

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Speaker 3: and I hated it.

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Speaker 2: And I had a similar experience, and it was like.

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Speaker 3: You know, I shouldn't have hated it as much as

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Speaker 3: I did, but at the time, uh, it was ilm curves,

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Speaker 3: it was supply, it was demand, et cetera. And it

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Speaker 3: just it felt it didn't feel very practical to me,

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Speaker 3: and I didn't do very well and I didn't go

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Speaker 3: to class very often. I didn't do very well. But

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Speaker 3: then we got to kind of the next semester, which

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Speaker 3: I think they called finance one oh one and was

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Speaker 3: like bond math, discounted cash flows, and I was like,

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Speaker 3: oh this, I like, okay, I am in the right worl.

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Speaker 2: Well, it's much more realistic and you're not dealing with

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Speaker 2: homo economy because that is this theoretical.

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Speaker 3: Looking back on, I wish I had listened a bit

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Speaker 3: more at some of those others. But you know something

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Speaker 3: I say, maybe we'll get to is like it just

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Speaker 3: in recommendation would give to other people. It took me

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Speaker 3: a little while to realize what I was introd in,

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Speaker 3: what I was interested in being interested in. And when

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Speaker 3: I got into some of those classes, kind of the

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Speaker 3: more financi kind of stuff, I was like this, I

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Speaker 3: like this makes sense. I want to learn more, and

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Speaker 3: I think that's kind of where it's right. So I

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Speaker 3: always wanted to I just like, when there's you know,

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Speaker 3: numbers on the page, it adds up to something you're

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Speaker 3: trying to make money. It's hopefully positive at the end,

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Speaker 3: it might be negative. It's pretty clear cut at least

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Speaker 3: the goal is And I always like that, always gravitating.

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Speaker 2: So economics way too abstract and academic, but business and

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Speaker 2: finance practical, applicable, real life usage.

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Speaker 3: Yeah, which is interesting too because I also I'm a

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Speaker 3: little bit like this a little exaggerate, but I'm a

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Speaker 3: little bit of like a history buff, so like it

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Speaker 3: was interesting that that what didn't didn't appeal to me

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Speaker 3: because I do like kind of the history of it.

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Speaker 3: How did we get here? And I think that's always

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Speaker 3: something that I'm like in this form as well, going

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Speaker 3: back to learn more about financial systems, how much works,

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Speaker 3: how they thought it used to work, different schools of thoughts,

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Speaker 3: and I think it really helps you understand where you've been,

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Speaker 3: where you are, where you're going.

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Speaker 2: So when you look back when you were a group

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Speaker 2: treasurer or chief investment officer at the JP Morgan division

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Speaker 2: you were, you were involved in, what sort of lessons

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Speaker 2: did you take away from that? You're you're in the

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Speaker 2: real world managing real risk, real portfolios. How did that

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Speaker 2: experience change how you perceive risk?

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Speaker 3: Yeah, it's a great question, and I'll tell you so. Obviously,

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Speaker 3: I had a career with a background in trading, running

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Speaker 3: trading teams both on the buy side and the cell side,

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Speaker 3: and it was really that experience that this next piece

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Speaker 3: that was transformative for me, and you know, really brought

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Speaker 3: us to the point where my partner, Derek Woman and

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Speaker 3: I decided let's form Eric and you know, I'm sure

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Speaker 3: we'll get into that a bit. But what happened was

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Speaker 3: I spent twenty odd years trading mortgages, rates, corporate high

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Speaker 3: yield products like that, working with specialty finance companies, some

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Speaker 3: that I worked with, some I had a hand in

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Speaker 3: running this kind of universe, and then in late twenty nineteen,

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Speaker 3: the opportunity to move over, and this was different building,

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Speaker 3: different Waldorf, key card, different team, and be the CIO

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Speaker 3: and the treasurer. So this is now by side running

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Speaker 3: the capital of the firm, the investment of the firm,

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Speaker 3: hedging and managing structure was lots of things wrapped up

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Speaker 3: in there. But the real thing was the point in

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Speaker 3: time where this happened was late twenty nineteen. A few

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Speaker 3: days later was the repo crisis. If we remember that,

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Speaker 3: when all of a sudden, if you wanted to borrow

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Speaker 3: overnight against treasuries, it costs you ten percent. Okay, six

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Speaker 3: months after that pandemic breaks out. And why bring that up?

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Speaker 3: Is so much changed in dramatic size, at rapid speed

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Speaker 3: that I saw something I'd never seen before, and it

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Speaker 3: was how does the financial system really work? And what

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Speaker 3: does it mean? And how does it apply to everything

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Speaker 3: that I've done? And it was one of these moments

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Speaker 3: where I felt like I just went from being the

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Speaker 3: captain of the ship, you know, my own little thing,

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Speaker 3: right will be a little expansive with it. I went

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Speaker 3: from being the captain of the ship to going to

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Speaker 3: work in the engine room and seeing the actual gearing

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Speaker 3: and how it works and how it doesn't and what

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Speaker 3: could stop it from working. And you spend years, you know,

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Speaker 3: you pull a lever, you think the boat goes faster,

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Speaker 3: but you don't know why, and you don't know what

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Speaker 3: could stop it from doing that. You don't know what

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Speaker 3: could make it work more efficiently. But now you go

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Speaker 3: work in the engine room and you see it and

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Speaker 3: you understand it. It was just this aha moment, Like we're

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Speaker 3: two guys with glasses, right, So you know, when you

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Speaker 3: go to the you get a new prescription, you get

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Speaker 3: your new glasses, you put them on, You're like, oh

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Speaker 3: my god, I can see right. And by the way,

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Speaker 3: how was I walking around the streets of Manhattan with

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Speaker 3: that old prescription? But now I can see clearly, and honestly,

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Speaker 3: twenty odd years into my career. That's how I felt

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Speaker 3: to that.

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Speaker 2: Moment in twenty nineteen.

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Speaker 3: Yeah, I would say like in early twenty twenty, about

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Speaker 3: six months in, it was kind of like, oh my goodness,

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Speaker 3: it's coming together.

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Speaker 2: Now.

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Speaker 3: I wish I wish I had known this for the

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Speaker 3: twenty years that preceded this, but I felt like, now

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Speaker 3: I know nothing and I'm starting.

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Speaker 2: To learn, so I have to ask. So my experience

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Speaker 2: with twenty nineteen was that wobble seemed to go by

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Speaker 2: so quickly compared to eight oh nine, where you know,

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Speaker 2: to me, you saw a lot of warning signs, first

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Speaker 2: in housing and then in securitized product, and then in construction,

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Speaker 2: and then you know, the market didn't peak till October seven,

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Speaker 2: and the next eighteen months were kind of fun if

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Speaker 2: you were on the right side of it, but if

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Speaker 2: you weren't, it must have been a bloodbath. It sounds

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Speaker 2: like you derived more out of the twenty nineteen experience.

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Speaker 2: Then you're on a desk eight O nine. What sort

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Speaker 2: of scar tissue did that leave? How? Yeah, informative was that?

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Speaker 3: That's really interesting the way you kind of put those together.

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Speaker 3: And so to set the table a bit O seven.

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Speaker 3: When I got to JP Morgan, lad O six seven,

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Speaker 3: eight oh nine, I was in charge of had a team.

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Speaker 3: We traded asset backed security, say, credit cards, auto student loans,

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Speaker 3: subprime mortgages. Remember those clos so really kind of like

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Speaker 3: the center of what ended up happening after that. And

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Speaker 3: I would say it was so overwhelming at the time.

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Speaker 3: I mean, we were there two in the morning, hand

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Speaker 3: marking bonds, okay, walking across the street between the two buildings, like,

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Speaker 3: is there more information this company might buy that company

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Speaker 3: before the market opens? What else can we do? The

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Speaker 3: numbers were huge. It was almost like a bit more

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Speaker 3: than you could process at the time. But I think

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Speaker 3: each one of these became every step there was like

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Speaker 3: I understand what I'm doing better now because the first

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Speaker 3: thing I ever did was I started I was a

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Speaker 3: cash flow structure. And actually, at that point in time,

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Speaker 3: the guy who ran the department was a friend of

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Speaker 3: mine named Bruce Richards, who went on to start Marathon

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Speaker 3: and has had a fantastic career, and we keep in

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Speaker 3: touch and he said, I said, I want to be

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Speaker 3: a trader, and he said, well, I want you to

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Speaker 3: be a structure because if you learn how the cash

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Speaker 3: flow works, how the structure works, then you'll be a

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Speaker 3: better trader later on. I think each piece helped me

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Speaker 3: understand the risk better, and then the system it sits in,

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Speaker 3: and that helps you understand the risk better. And then

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Speaker 3: when you understand the risk better, you understand the system

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Speaker 3: it sits in better, and it builds and it builds

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Speaker 3: on top of each other. So I would say in

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Speaker 3: eight I learned more. In eight we saw we felt

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Speaker 3: like we were the tip of the spear in like

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Speaker 3: a bad way, and we could see it was getting worse,

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Speaker 3: and it was accelerating, and we could see the people

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Speaker 3: were maybe even underestimating. And I remember some conversations around

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Speaker 3: at the time that we were basically saying, like, think bigger,

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Speaker 3: think broader, think worse. That's the context we're talking about.

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Speaker 3: But all of that helped me understand how does my

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Speaker 3: product I'm trading fit into an investment bank? How's an

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Speaker 3: investment bank impact the system. I think when I went

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Speaker 3: into twenty nineteen, obviously a lot time had passed, I'd

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Speaker 3: had more experiences, et cetera. I remember sitting in a meeting.

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Speaker 3: We're in seven thirty am traders meeting. This is with

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Speaker 3: the CIO group, and we go around the table, my

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Speaker 3: rates lead, my credit lead, et cetera, and the REPO

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Speaker 3: guys walk in and they say, hey, we can lend

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Speaker 3: against treasuries at ten percent? Should we do more? And

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Speaker 3: I said, guys, this is my third day with this team. Okay,

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Speaker 3: I'm the person in the room who knows the least

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Speaker 3: about what you're talking about. But if you need my authorization,

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Speaker 3: you have it.

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Speaker 2: Because that sounds pretty great.

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Speaker 3: That's fantastic. My response to you is how much can

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Speaker 3: we not? Can we do more?

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Speaker 2: Like?

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Speaker 3: How much can we do? Meaning more and more? And

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Speaker 3: that just became the beginning of like, why did that happen?

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Speaker 3: How did we get here? What's the where did it

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Speaker 3: come from? Where does it go? And I found that

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Speaker 3: certain people knew certain pieces but not the picture. And

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Speaker 3: then you're like it was just starting to pull.

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Speaker 2: Out, and that was your job to the whole picture.

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Speaker 3: It became it became the only It became the focus

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Speaker 3: of what I wanted to know, because unpacking that would

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Speaker 3: help me understand how do we get here, why does

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Speaker 3: this happen? And by the way, what are the pieces

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Speaker 3: that put this all together? And how do we how

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Speaker 3: do we take advantage of that? How do we protect ourselves,

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Speaker 3: but also how do we take advantage of that? So

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Speaker 3: is this the whole thing? Was this one of those

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Speaker 3: types of things you say, I opened up a door,

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Speaker 3: three doors behind it, and I want to keep going

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Speaker 3: in that direction. And it felt to me like a

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Speaker 3: purer and purer version of everything I'd done in my career.

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Speaker 3: Getting closer and closer to the source in pricing.

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Speaker 2: Really really fascinating. One of the things I think a

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Speaker 2: lot of people don't realize about JP Morgan Chase during

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Speaker 2: the financial crisis, and I never doing the research for

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Speaker 2: Balot Nation, I never got this really source the way

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Speaker 2: I would have liked to. But JP Morgan Chase had

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Speaker 2: their own derivative scare a couple of years earlier, and

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Speaker 2: the word was Jamie just said, clear all this junk

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Speaker 2: off of our balance sheet, we don't we can't handle

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Speaker 2: this risk doesn't seem to be worth the potential upside.

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Speaker 2: So heading into eight oh nine, they weren't dealing with

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Speaker 2: the same sort of existential danger that Merrill, Lynch and Wells,

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Speaker 2: Fargo and go down the list all had to go through.

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Speaker 2: They were ended up being an acquirer of distress assets,

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Speaker 2: not a seller of distressed assets.

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Speaker 3: Well, I think. I mean, it was a tremendous place

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Speaker 3: to work. I worked with incredible people. I learned a lot,

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Speaker 3: and I worked with great, great people that you're just

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Speaker 3: part of a terrific team, fantastic place. I learned something

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Speaker 3: that became transformative to everything I'd spent my career doing.

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Speaker 3: So that's why we set out too, and I said,

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Speaker 3: I want to do this, and that's why we set

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Speaker 3: out to build Merrick. When we said, you know, I

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Speaker 3: recalled Derek and I sat down one day and I said,

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Speaker 3: let me just here's how I think about markets. I

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Speaker 3: think about it in terms of money, capital, credit, liquidity,

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Speaker 3: and regulation. That's my five money Capital, credit, liquidity, regulation, MCCLR.

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Speaker 2: How do you separate money from capital?

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Speaker 3: So I think money to me is how do you

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Speaker 3: make it? How do you destroy? How does it move

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Speaker 3: through the system. To me, capital is a little bit

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Speaker 3: more of how much do you have? How do you

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Speaker 3: measure it? How much do you have? Are you making more?

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Speaker 3: You destroying it? Credit is really how is it being formed?

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Speaker 3: How is it moving through the system. The financial system

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Speaker 3: is changing now, It's very different than it was a

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Speaker 3: few years ago. We actually when we were really trying

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Speaker 3: to get our ideas on paper. We wrote a paper

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Speaker 3: that we outline saying we described what we thought was

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Speaker 3: the new version of the financial system. We said, the

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Speaker 3: financial system is changing, your de facto recreating Glass Steegel.

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Speaker 3: You have gesibs. If you come from some of this framework,

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Speaker 3: you know, are the globally systematically important banks, systemically important

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Speaker 3: banks think JP, Morgan Wells, Bank of America, et cetera.

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Speaker 3: We said, there are the new gesips, people like Apollo, Blackstone, KKR, Blackrock.

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Speaker 3: These are areas. These are the folks that are actually

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Speaker 3: making credit extension decisions in this economy. Okay, you have

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Speaker 3: the traders like Citadel, Securities, Jump Chain, some of these

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Speaker 3: other names. Everybody's familiar with. This is disaggregating the financial

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Speaker 3: system and putting it into different buckets. So basically we

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Speaker 3: think about where's it coming from, where does it go,

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Speaker 3: who wins, who loses? What are the flywheels here. This

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Speaker 3: is a process that we apply to everything we do.

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Speaker 3: Some of the guys on the team call it McLear mcclr.

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Speaker 3: It's the lens that we look at because we believe

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Speaker 3: money capital, credit liquiding regulation drives economies, markets and prices,

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Speaker 3: and then you can really start to understand monetary policy,

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Speaker 3: real estate housing, the types of specialty finance companies we've

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Speaker 3: talked about consumer So this, to me, actually explains how

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Speaker 3: it all works, and we apply that. It's a huge

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Speaker 3: addressable universe. We trade rates, mortgages, securitized products, corporate credit

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Speaker 3: related equities. It's an enormous addressable universe with investors that

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Speaker 3: have very narrow mandates that transact to different points in

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Speaker 3: time and sometimes non economically imbound by potentially non economic rules,

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Speaker 3: which means there are a lot of overlaps that people

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Speaker 3: don't take the advantage of, and there's a lot of

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Speaker 3: gaps that they quite simply don't bridge. And the setup

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Speaker 3: for all of this, I think, and I've seen some stuff.

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Speaker 3: A lot of your listeners have seen quite a bunch

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Speaker 3: of stuff. We've seen things go right, we've seen things

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Speaker 3: go wrong. This is one of the best setups we've

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Speaker 3: seen in a long time, and so that's why we

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Speaker 3: went out to say, I saw some interesting stuff, I

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Speaker 3: learned some interesting stuff. There's an opportunity set that we

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Speaker 3: want to prosecute right now, and it is an incredible

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Speaker 3: time to do so. So we built a team.

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Speaker 2: Sorry, go ahead, I was just gonna ask No, I'm fascinated.

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Speaker 2: I want to roll back to something you said earlier,

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Speaker 2: which was glass Steegel is sort of being backdoor re applied.

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Speaker 2: Is that a function of people being risk averse or

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Speaker 2: is that a function of people just specializing in their

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Speaker 2: own silo so you don't have, you know, glass Steagel

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Speaker 2: for people who aren't. Economic and policy wonks separated the

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Speaker 2: FDIC safe banks from the riskier investment banks, and once

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Speaker 2: that was repealed in the late nineties, didn't cause the

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Speaker 2: financial crisis, but allowed all these banks to merge and

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Speaker 2: get bigger, and maybe it made the crisis a little worse,

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Speaker 2: But I don't think of it as the underlying cause.

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Speaker 2: But the idea that the market is working its way

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Speaker 2: back towards that is kind of fascinating. Let me suggress that.

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Speaker 3: Right as you laid out, like glass sel to say

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Speaker 3: it to oversimplify, basically said like, you can hold deposits,

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Speaker 3: you can underwrite securities, you can trade securities, things like that,

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Speaker 3: and there were rules right now, there are some rules

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Speaker 3: that say what you can and can't do, but really

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Speaker 3: there's a lot more that has morphed into what people

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Speaker 3: like to call private credit, or we're going to extend

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Speaker 3: credit through these fashions, or some of the rules don't

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Speaker 3: apply to this group, so we can trade the markets differently,

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Speaker 3: or we can make markets in a way that maybe

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Speaker 3: the big banks can't. And then the big banks say, well,

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Speaker 3: we're viewed as super safe, because I would argue we

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Speaker 3: are and that has its advantages also. So it's like

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Speaker 3: we created these artificial boundaries. What is great for us

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Speaker 3: and the way we look at the world is we

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Speaker 3: saw that, we see that, we understand that we also

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Speaker 3: see and understand and think about all day long and

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Speaker 3: put it into our portfolio construction and the risk that

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Speaker 3: we build. It's all up for grabs again, right. So

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Speaker 3: we've got Kevin Worsh nominated to be the FED chair

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Speaker 3: and Mickey Bowman is the vice chair for supervision, and

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Speaker 3: they are no, no, what the right adjective for it is.

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Speaker 3: But they're changing the rules and they're pulling some of

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Speaker 3: them down, and in my opinion, people just don't understand

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Speaker 3: which of them matter and which of them don't, and

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Speaker 3: the market moves to place on some that simply don't matter,

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Speaker 3: like it's lack of understanding of what SLR was and

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Speaker 3: how that worked, and we don't need to dive into that,

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Speaker 3: but to simplify, they said, we're going to remove this

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Speaker 3: rule and it's a big deal, and we Merek said

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Speaker 3: you can take it off. It doesn't matter. So everything

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Speaker 3: the market's doing in reaction to that is a potential

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Speaker 3: opportunity for us.

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Speaker 2: In other words, people are overreacting to a regulatory change

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Speaker 2: that is in significant, long time.

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Speaker 3: And that example.

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Speaker 2: Yeah, coming up. We continue our conversation with Matt Sherwin,

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Speaker 2: co founder in chief officer at Merrick Capitol, discussing why

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Speaker 2: he launched the firm in twenty twenty four. I'm Barry Ritolts.

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Speaker 2: You're listening to Masters in Business on Bloomberg Radio. I'm

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Speaker 2: Barry Ridolts. You're listening to Masters in Business on Bloomberg Radio.

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Speaker 2: My extra special guest today is Matt Sherwin. He is

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Speaker 2: co founder and chief investment officer of Merik Capital, specializing

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Speaker 2: in a variety of alternative credit and related private products. Previously,

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Speaker 2: he spent sixteen years at JP Morgan Chase, where he

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Speaker 2: had a number of very important titles. Before that, City Group,

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Speaker 2: are we in all that unique a period of time.

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Speaker 2: Is the opportunity set that much greater than what we

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Speaker 2: typically see in the normal You know, this is a

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Speaker 2: little more geopolitically volatile administration than than even the previous

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Speaker 2: Trump administration. Is that a driver or is it the

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Speaker 2: deregulation and misapprehension of what these rule changes mean?

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Speaker 3: I think it's a combination of what's going on. So

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Speaker 3: we have we just kind of use some little catchphrases

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Speaker 3: among the team that help us sort of like, you know,

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Speaker 3: gravitate around concepts or communicate quickly. We say, this is

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Speaker 3: an administration that's in the business of being in business,

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Speaker 3: and that's just a there's no opinion or judgment one

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Speaker 3: way or the other. It's just it's just a statement

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Speaker 3: what this environment is. Also, we also came up with

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Speaker 3: something that we thought was just made us chuckle one like,

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Speaker 3: it's important to have a little bit of sense of humor.

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Speaker 3: We found our investors actually do read the materials very

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Speaker 3: closely and they tend to have a sense of humor,

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Speaker 3: which is good. But we created this thing we called

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Speaker 3: the one big Beautiful chart, uh huh, and we just said,

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Speaker 3: you know what they really need, They need rates to

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Speaker 3: get down, and they needed to come down a lot

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Speaker 3: more them what the market and the curve has already

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Speaker 3: priced in because of how much debt the country has,

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Speaker 3: what it costs, what they want to come So here's

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Speaker 3: what they need to accomplish, and they're going to do

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Speaker 3: everything they can to it. So, you know, we construct portfoliot,

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Speaker 3: we have an investment thesis, We have a narrative. Everything

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Speaker 3: we put in the book has to fit that narrative,

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Speaker 3: has to contribute to what we're trying to achieve, has

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Speaker 3: to be the best version of that, or has to

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Speaker 3: protect us from what could go wrong. So getting back

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Speaker 3: to your question a little bit, we think it's a

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Speaker 3: very business forward environment, business forward administration. We think that

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Speaker 3: it is one that needs rates to come down. We

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Speaker 3: are going to have a new FED chair in the

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Speaker 3: middle of June, and he'll say all sorts of things

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Speaker 3: in the confirmation hearing, but really it will be a

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Speaker 3: catalyst potentially for change in the middle of the year.

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Speaker 3: And then we have a bias within markets to strip

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Speaker 3: back some of the layers of of regulation and away

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Speaker 3: from Whether you support that or not, I can tell

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Speaker 3: you because I've been on the other side of it.

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Speaker 3: The layers of process and bureaucracy and spending your time

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Speaker 3: back solving instead of what could we do better. When

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Speaker 3: you change what your goal is and how you're pointed,

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Speaker 3: you're going to get different results. We think that combination

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Speaker 3: is spinning flywheels in the market now that in our opinion,

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Speaker 3: people are just they're underestimating the power of some of

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Speaker 3: these flywheels.

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Speaker 2: Really really interesting. Last question before we talk a little

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Speaker 2: bit about Marek. In the old days, and I was

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Speaker 2: never a big believer in this, but everybody else was,

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Speaker 2: there was some constraints on deficits and ongoing government debt

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Speaker 2: because the bond vigilantes would punish you. The bond vigilantes

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Speaker 2: seem to have disappeared, in part replaced by the stock vigilantes,

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Speaker 2: who any policy they don't like they just sell off

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Speaker 2: until they have their hissy fit, until they get their way,

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Speaker 2: and then okay, thank you very much, and we're off

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Speaker 2: to the races again. What do you think of the

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Speaker 2: eighties nineties era bon vigilantes? Is that just ancient history.

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Speaker 2: There's no discipline on deficits spending anymore, or and by

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Speaker 2: the way, I think deficits are not all that relevant

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Speaker 2: look at Japan, look at the US history. We've been

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Speaker 2: warned about deficits and they haven't caused much of a

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Speaker 2: problem most of this history.

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Speaker 3: Yeah, I mean, look, I love the term, and I

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Speaker 3: think we've seen some of those episodes. Last year we

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Speaker 3: saw around the whatever we call Liberation Day in April,

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Speaker 3: like there were a couple of days where treasuries and

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Speaker 3: mortgages said like enough, Okay, that's it, and we're either

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Speaker 3: going to have one of those days where they are

431
00:24:54,119 --> 00:24:57,879
Speaker 3: giving stuff away or you got to pull back. And

432
00:24:58,000 --> 00:25:00,439
Speaker 3: I think what we saw was the administration pull back.

433
00:25:00,480 --> 00:25:03,239
Speaker 3: So I think in some level it's still there. But

434
00:25:03,320 --> 00:25:06,120
Speaker 3: part of what we do ATMERIC and what influences our

435
00:25:06,160 --> 00:25:09,879
Speaker 3: thought process is big. Parts of this have been really

436
00:25:09,880 --> 00:25:12,480
Speaker 3: broken down. The markets are so big now that it's

437
00:25:12,480 --> 00:25:15,320
Speaker 3: been broken into specific functions. Like people have odd thing

438
00:25:15,440 --> 00:25:17,760
Speaker 3: to do and they do that in a narrow mandate.

439
00:25:18,760 --> 00:25:22,240
Speaker 3: We have a more flexible mandate to us. The products,

440
00:25:22,560 --> 00:25:25,280
Speaker 3: they're widgets, they're tools in the toolbox for us to

441
00:25:25,320 --> 00:25:29,080
Speaker 3: achieve our goals and our investment thesis and the portfolio

442
00:25:29,200 --> 00:25:32,080
Speaker 3: risk and construction and diversification that we'd like to have.

443
00:25:33,560 --> 00:25:36,960
Speaker 3: But the markets are hyper specialized in very, very large markets,

444
00:25:36,960 --> 00:25:39,680
Speaker 3: so you get some of those episodes where it's like, oh,

445
00:25:39,800 --> 00:25:42,359
Speaker 3: crowded trade, we got to get out. I think the

446
00:25:42,480 --> 00:25:47,480
Speaker 3: question of does the administration react to the markets? Does

447
00:25:47,480 --> 00:25:50,280
Speaker 3: the markets react to the administration. It's something that we've

448
00:25:50,359 --> 00:25:57,199
Speaker 3: actually focused on quite a bit. We actually, you know,

449
00:25:57,680 --> 00:26:01,800
Speaker 3: we wrote another pie in June of twenty twenty five

450
00:26:02,440 --> 00:26:04,879
Speaker 3: that we call the Warshfed and it was just about

451
00:26:04,920 --> 00:26:07,359
Speaker 3: what could happen, and we sort of went through to

452
00:26:07,440 --> 00:26:10,919
Speaker 3: your point, like the concept of risk free rate and

453
00:26:11,000 --> 00:26:14,399
Speaker 3: credit spread are completely intertwined and commingled now and they

454
00:26:14,440 --> 00:26:16,679
Speaker 3: don't exist separately. So I think that's some of the

455
00:26:16,720 --> 00:26:22,000
Speaker 3: concepts you're getting at. Is this a problem for credit?

456
00:26:22,119 --> 00:26:24,680
Speaker 3: Is it a problem for rates? Are those the same thing?

457
00:26:24,920 --> 00:26:25,200
Speaker 2: Now?

458
00:26:26,640 --> 00:26:30,159
Speaker 3: One of the most interesting things, and I would just

459
00:26:30,160 --> 00:26:33,360
Speaker 3: say before we get back to your question, is what

460
00:26:33,400 --> 00:26:36,080
Speaker 3: was really interesting observation to us was during the last

461
00:26:36,080 --> 00:26:39,200
Speaker 3: government shut down, whatever mini version of that we're going

462
00:26:39,240 --> 00:26:42,120
Speaker 3: through right now, it was almost in the data was

463
00:26:42,200 --> 00:26:45,960
Speaker 3: not forthcoming, and then VOLE went down, So it was

464
00:26:46,040 --> 00:26:49,280
Speaker 3: this sort of like a little bit like if we

465
00:26:49,359 --> 00:26:52,960
Speaker 3: don't know, maybe nothing's happening. But what it also was

466
00:26:52,960 --> 00:26:55,159
Speaker 3: was a little bit to what you were saying is

467
00:26:56,600 --> 00:27:00,000
Speaker 3: when things were a little less hyper focused, they actually

468
00:27:00,160 --> 00:27:04,639
Speaker 3: we're a little less jumpy around small moves, And that

469
00:27:04,800 --> 00:27:08,199
Speaker 3: was a big takeaway, big takeaway for us. It's a

470
00:27:08,240 --> 00:27:11,400
Speaker 3: big thing you're going to hear from Kevin Walsh if

471
00:27:11,440 --> 00:27:16,280
Speaker 3: he ends up in the chair seat, You're gonna hear

472
00:27:16,320 --> 00:27:19,280
Speaker 3: a long narrative from him for his time in that

473
00:27:19,320 --> 00:27:22,080
Speaker 3: seat of we need to step back from the day

474
00:27:22,119 --> 00:27:25,200
Speaker 3: to day and the minute by minute information and think

475
00:27:25,240 --> 00:27:27,440
Speaker 3: about the big better picture and the trend and where

476
00:27:27,480 --> 00:27:31,040
Speaker 3: we're headed and be a little more forward looking. I

477
00:27:31,080 --> 00:27:34,000
Speaker 3: think that's the kind of guidance that you will get

478
00:27:34,040 --> 00:27:34,680
Speaker 3: from that chair.

479
00:27:35,119 --> 00:27:39,400
Speaker 2: Really interesting. So let's just start out with why you

480
00:27:39,520 --> 00:27:43,239
Speaker 2: left the comfort of a big shop to have the

481
00:27:43,680 --> 00:27:47,440
Speaker 2: headache of your own firm. What's the elevator pitch? What

482
00:27:47,600 --> 00:27:51,800
Speaker 2: problem does Mara Capital solve that couldn't be solved at

483
00:27:51,840 --> 00:27:53,439
Speaker 2: a large Wall Street bank.

484
00:27:54,600 --> 00:27:57,160
Speaker 3: Look, I think quite simply, there are some things that

485
00:27:57,280 --> 00:27:59,439
Speaker 3: banks can do and some things that banks can't do,

486
00:28:00,160 --> 00:28:01,960
Speaker 3: some things that they can do and that they don't

487
00:28:02,000 --> 00:28:06,800
Speaker 3: want to do. In my career, I've always been involved

488
00:28:06,800 --> 00:28:11,240
Speaker 3: in these types of markets, being rates mortgages, securitized products,

489
00:28:11,320 --> 00:28:14,720
Speaker 3: corporate credit, the equities related to that around it, these

490
00:28:14,760 --> 00:28:19,000
Speaker 3: types of specialty finance, operating companies, and always felt that

491
00:28:19,720 --> 00:28:24,280
Speaker 3: you have when you can apply the various lenses to

492
00:28:24,400 --> 00:28:28,560
Speaker 3: these products, being the trader lens, the structurer lens, the

493
00:28:28,600 --> 00:28:31,800
Speaker 3: operator lens, you understand it better and you get the

494
00:28:31,840 --> 00:28:35,040
Speaker 3: gearing and the pieces. And when you learn about the

495
00:28:35,040 --> 00:28:38,840
Speaker 3: financial system that it sits within, then you actually can

496
00:28:39,800 --> 00:28:44,000
Speaker 3: understand but take advantage of the risk and return in

497
00:28:44,040 --> 00:28:46,600
Speaker 3: a more elevated and efficient way.

498
00:28:47,080 --> 00:28:50,640
Speaker 2: I want to address that. Is it that the big firms,

499
00:28:50,720 --> 00:28:54,240
Speaker 2: the bigger banks were risk averse and didn't want to

500
00:28:54,280 --> 00:28:57,040
Speaker 2: take advantage of it, whether they were prohibited on a

501
00:28:57,080 --> 00:29:00,360
Speaker 2: regulatory basis or when they're just doing their mac grow

502
00:29:00,440 --> 00:29:03,560
Speaker 2: risk assessment. Hey, we'll go this far, but no further.

503
00:29:04,160 --> 00:29:08,400
Speaker 3: I think it's even simpler than that. We look at

504
00:29:08,560 --> 00:29:12,040
Speaker 3: the worlds through our lens. We look at the world

505
00:29:12,160 --> 00:29:16,080
Speaker 3: through the Merrick lens of money, capital, credit, liquidity, and regulation,

506
00:29:17,200 --> 00:29:22,120
Speaker 3: which drives economies, markets and prices. That helps us understand

507
00:29:22,400 --> 00:29:26,160
Speaker 3: the drivers of the capital markets that we sit within,

508
00:29:26,480 --> 00:29:32,400
Speaker 3: helps us understand monetary policy, housing finance, commercial real estate finance,

509
00:29:32,840 --> 00:29:34,960
Speaker 3: understand both the gearing of it. Then you can look

510
00:29:34,960 --> 00:29:37,200
Speaker 3: at something and you can say, Okay, I'm looking at

511
00:29:37,440 --> 00:29:40,160
Speaker 3: City Group, I could buy it, I could sell it.

512
00:29:40,200 --> 00:29:42,400
Speaker 3: I could understand what they're doing in the markets. They

513
00:29:42,400 --> 00:29:44,760
Speaker 3: have a footprint in what that means for the markets.

514
00:29:44,840 --> 00:29:46,240
Speaker 3: Do I want to buy that? So like where are

515
00:29:46,240 --> 00:29:49,760
Speaker 3: the flywheels? What does it spin to next? So everything

516
00:29:49,800 --> 00:29:53,440
Speaker 3: we were doing was very much about what do we

517
00:29:53,480 --> 00:29:56,880
Speaker 3: want to do because we see a very large addressable

518
00:29:56,880 --> 00:30:02,080
Speaker 3: opportunity where we have a unique perspective, a defined lens,

519
00:30:02,880 --> 00:30:05,480
Speaker 3: and a way of applying that to these big liquid

520
00:30:05,520 --> 00:30:08,560
Speaker 3: markets that we think very strongly we can take advantage

521
00:30:08,560 --> 00:30:11,160
Speaker 3: of in a way that people simply haven't had the

522
00:30:11,240 --> 00:30:15,520
Speaker 3: opportunity to learn about and to understand and apply to

523
00:30:15,640 --> 00:30:18,720
Speaker 3: these products with the type of flexible mandate that we have,

524
00:30:18,800 --> 00:30:21,920
Speaker 3: which boiled down means we look at the world a

525
00:30:21,960 --> 00:30:28,560
Speaker 3: little differently. These are big addressable markets which have dislocations, volatility,

526
00:30:28,560 --> 00:30:31,560
Speaker 3: and opportunity all the time, and we can use that

527
00:30:31,760 --> 00:30:35,760
Speaker 3: combination to achieve what's a very very simple goal, improve

528
00:30:35,800 --> 00:30:37,880
Speaker 3: the return a little bit while reducing the risk a

529
00:30:37,880 --> 00:30:38,320
Speaker 3: little bit.

530
00:30:38,640 --> 00:30:41,200
Speaker 2: That's all anyone can ask for better returns at lower risk.

531
00:30:42,640 --> 00:30:47,400
Speaker 2: I'm kind of fascinated by the overall Merrick investment philosophy.

532
00:30:47,440 --> 00:30:50,160
Speaker 2: We'll get to, but let's start with a little bit

533
00:30:50,160 --> 00:30:54,000
Speaker 2: with structure. I think of you guys as an alt

534
00:30:54,160 --> 00:30:57,680
Speaker 2: credit shop, but you also look a little bit like

535
00:30:57,720 --> 00:31:00,959
Speaker 2: a multi strat shop, like a is it so kind

536
00:31:01,000 --> 00:31:03,160
Speaker 2: of a hybrid like? Tell us about the structure.

537
00:31:05,160 --> 00:31:07,840
Speaker 3: We just define what we do. Okay, we are who

538
00:31:07,840 --> 00:31:09,360
Speaker 3: we are. We do it the way that we do.

539
00:31:13,240 --> 00:31:15,960
Speaker 3: We run where right now we're running a hedge fund

540
00:31:17,040 --> 00:31:21,320
Speaker 3: which trades these products as well, I SAIDs tools in

541
00:31:21,320 --> 00:31:23,560
Speaker 3: the toolbox as as wige. We do it in one

542
00:31:23,600 --> 00:31:27,160
Speaker 3: collaborative portfolio. So our set up, our structure. We've got

543
00:31:27,200 --> 00:31:31,920
Speaker 3: an amazing team. We have specialists in rates, in mortgages,

544
00:31:32,280 --> 00:31:35,080
Speaker 3: in non agency mortages, and a BS in credit in

545
00:31:35,280 --> 00:31:39,200
Speaker 3: clos I am on the phone every day with traders

546
00:31:39,320 --> 00:31:43,720
Speaker 3: and salespeople myself. We trade it as one bookoo.

547
00:31:43,800 --> 00:31:49,760
Speaker 2: Well, not really a multi strat within a single expression.

548
00:31:50,560 --> 00:31:53,400
Speaker 3: It is what we think is the best expression of

549
00:31:53,440 --> 00:31:53,920
Speaker 3: the trade.

550
00:31:54,400 --> 00:31:57,080
Speaker 2: Well, I shouldn't call it multi strat. It's really multi asset.

551
00:31:57,120 --> 00:32:00,840
Speaker 2: It's a variety of different credit assets all under one umbrella.

552
00:32:01,480 --> 00:32:06,520
Speaker 3: Within our lane. Okay, sticking to our knitting what we believe,

553
00:32:06,560 --> 00:32:09,640
Speaker 3: we know very well. What we know, we have a

554
00:32:09,680 --> 00:32:16,560
Speaker 3: differentiated insight into and extracting from that. Okay. The team

555
00:32:16,880 --> 00:32:20,400
Speaker 3: is phenomenal. They have a ton of byside and cell

556
00:32:20,480 --> 00:32:24,840
Speaker 3: side experience. They work very well together. It's very exciting

557
00:32:24,880 --> 00:32:29,719
Speaker 3: to be I mean, and additionally doing this together, like

558
00:32:29,800 --> 00:32:31,960
Speaker 3: Derek and I doing this together, putting our name on

559
00:32:32,040 --> 00:32:36,240
Speaker 3: the door, like Marek is Matt and Derek, because we

560
00:32:36,400 --> 00:32:39,080
Speaker 3: spent way too much time trying to think of what's

561
00:32:39,080 --> 00:32:45,440
Speaker 3: a clever name that means means you know, alpha extraction

562
00:32:45,640 --> 00:32:49,360
Speaker 3: in Sanskrit or some something you know. And Derek's wife

563
00:32:49,400 --> 00:32:53,000
Speaker 3: one day was like, enough, it's Marek, Matt and Derek.

564
00:32:53,560 --> 00:32:55,760
Speaker 3: Now go do some real work. And I think she

565
00:32:55,840 --> 00:32:57,600
Speaker 3: said in a little bit more of a spicy way,

566
00:32:58,200 --> 00:33:00,000
Speaker 3: but we were like, yeah, that could work, all right,

567
00:33:00,320 --> 00:33:00,880
Speaker 3: let's do that.

568
00:33:01,560 --> 00:33:05,800
Speaker 2: I think just a little footnote, if you've ever incorporated

569
00:33:05,840 --> 00:33:08,200
Speaker 2: an LLC or any other entity in New York State,

570
00:33:09,000 --> 00:33:13,640
Speaker 2: every Greek and Roman god, every Babylonian god, every cerebus

571
00:33:14,120 --> 00:33:18,320
Speaker 2: named the creature from mythology, it's either a fund or

572
00:33:18,360 --> 00:33:21,160
Speaker 2: an LLC. They're all taken it's astonishing.

573
00:33:21,240 --> 00:33:24,360
Speaker 3: But the real point I wanted to make also that

574
00:33:24,400 --> 00:33:27,200
Speaker 3: I don't want to lose, is this is putting our

575
00:33:27,320 --> 00:33:30,240
Speaker 3: name on the door. Okay, it's our name, it's our reputation,

576
00:33:30,360 --> 00:33:33,360
Speaker 3: because and that really cemented it for us. That was

577
00:33:33,400 --> 00:33:36,080
Speaker 3: something we really wanted. I took some time off and

578
00:33:36,120 --> 00:33:38,080
Speaker 3: which was fantastic, and I met some of the most

579
00:33:38,120 --> 00:33:41,640
Speaker 3: amazing and interesting people in the world. When you're unaffiliated,

580
00:33:42,160 --> 00:33:44,479
Speaker 3: people speak to you in a different way because they

581
00:33:44,520 --> 00:33:47,440
Speaker 3: had no one to talk to. Okay, I sat down

582
00:33:47,480 --> 00:33:49,760
Speaker 3: with the CEO of one of the world's largest pension

583
00:33:49,840 --> 00:33:52,920
Speaker 3: fund sovereign wealth funds, and we had and I never

584
00:33:53,000 --> 00:33:57,040
Speaker 3: met the person before. We had our long conversation because

585
00:33:58,440 --> 00:34:00,920
Speaker 3: he just needed to talk to someone. And I learned

586
00:34:00,960 --> 00:34:02,360
Speaker 3: a lot in that. I met some of the most

587
00:34:02,400 --> 00:34:06,640
Speaker 3: interesting people in venture cap in all it's in private equity,

588
00:34:06,680 --> 00:34:08,720
Speaker 3: et cetera. And it was just more way of learning

589
00:34:08,760 --> 00:34:11,160
Speaker 3: parts of the system. But it got to the point

590
00:34:11,160 --> 00:34:14,840
Speaker 3: where after my you know, academic wander through the wilderness,

591
00:34:15,040 --> 00:34:17,279
Speaker 3: I was like, okay, you know what this is. At

592
00:34:17,280 --> 00:34:19,279
Speaker 3: the time, we had three teenagers living at home and

593
00:34:19,320 --> 00:34:20,839
Speaker 3: it was an amazing time. I used to always say,

594
00:34:20,840 --> 00:34:22,279
Speaker 3: you should be able to retire in your forties and

595
00:34:22,320 --> 00:34:24,120
Speaker 3: go back to work in your fifties, Like that's the

596
00:34:24,120 --> 00:34:27,839
Speaker 3: way business should work. Obviously, that's a luxury that very

597
00:34:27,840 --> 00:34:32,879
Speaker 3: few have. But I was getting to the point where

598
00:34:32,880 --> 00:34:34,920
Speaker 3: I was like, Okay, I feel great. I want to

599
00:34:34,920 --> 00:34:36,799
Speaker 3: do this. I'm miss markets. I love this. I want

600
00:34:36,800 --> 00:34:38,880
Speaker 3: to get back to it, and I want to do

601
00:34:38,920 --> 00:34:40,839
Speaker 3: it in the way that I want to do it.

602
00:34:40,920 --> 00:34:43,800
Speaker 2: How long gap that I took, like about a year off.

603
00:34:43,680 --> 00:34:46,359
Speaker 3: You know, it's you know, it's a riot. So in

604
00:34:46,400 --> 00:34:50,360
Speaker 3: our deck, we put a little timeline of my experience

605
00:34:50,400 --> 00:34:52,600
Speaker 3: in Derek's experience, and just to help people understand who

606
00:34:52,640 --> 00:34:55,319
Speaker 3: hadn't met us, who we are. And at the very end,

607
00:34:55,719 --> 00:34:57,920
Speaker 3: I put you know, this is my background, simple. I

608
00:34:58,000 --> 00:35:00,520
Speaker 3: was here for ten years. I was there for sixteen years.

609
00:35:00,920 --> 00:35:03,920
Speaker 3: And then we put like a lot one year nugget

610
00:35:03,920 --> 00:35:05,880
Speaker 3: on the end of the timeline that just said chilling

611
00:35:06,320 --> 00:35:10,600
Speaker 3: no G no G just chi L I N R,

612
00:35:10,880 --> 00:35:11,719
Speaker 3: I don't remember.

613
00:35:11,520 --> 00:35:14,759
Speaker 2: Just very on Wall Street sort of.

614
00:35:14,960 --> 00:35:17,520
Speaker 3: Well, it was like our nine hundredth version of the

615
00:35:17,520 --> 00:35:19,840
Speaker 3: deck and we were just getting a little punching like

616
00:35:19,880 --> 00:35:22,399
Speaker 3: it made us laugh. Okay, you gotta have a sense

617
00:35:22,400 --> 00:35:24,200
Speaker 3: of humor. It made us laugh. So we're like, this

618
00:35:24,280 --> 00:35:28,120
Speaker 3: is going in. Every investor brings it up. They bring

619
00:35:28,200 --> 00:35:29,920
Speaker 3: it up and they love it and you know it.

620
00:35:30,000 --> 00:35:33,680
Speaker 3: To us, it's like, wow, you were reading every part

621
00:35:33,680 --> 00:35:36,120
Speaker 3: of the deck. And also it's nice to know you

622
00:35:36,200 --> 00:35:38,839
Speaker 3: have a sense of humor. But getting back, getting back

623
00:35:38,840 --> 00:35:39,600
Speaker 3: to it, it's like.

624
00:35:39,520 --> 00:35:43,760
Speaker 2: People, this is always shocking. People read the foot Oh.

625
00:35:43,640 --> 00:35:45,880
Speaker 3: Yes, that's been a big learning for us. They read it.

626
00:35:46,760 --> 00:35:49,080
Speaker 3: So when we were doing all this, you know, my

627
00:35:49,239 --> 00:35:52,680
Speaker 3: wife was like, yeah, why would you want to do

628
00:35:52,760 --> 00:35:56,880
Speaker 3: something for anybody else? And I thought to myself, exactly

629
00:35:57,600 --> 00:35:59,640
Speaker 3: what are we gonna work hard round? What are we

630
00:35:59,680 --> 00:36:02,120
Speaker 3: going to make sure succeeds the thing that we put

631
00:36:02,160 --> 00:36:05,240
Speaker 3: our name on the door, or reputation that we believe

632
00:36:06,880 --> 00:36:10,799
Speaker 3: other people don't get it that we believe is the

633
00:36:10,880 --> 00:36:13,879
Speaker 3: right way to approach these markets that we believe can

634
00:36:13,920 --> 00:36:17,320
Speaker 3: extract from a setup which is one of the best

635
00:36:17,400 --> 00:36:21,600
Speaker 3: that we've ever seen. So if you tick all those boxes,

636
00:36:22,760 --> 00:36:25,040
Speaker 3: why would you do it for anybody else? Huh?

637
00:36:25,200 --> 00:36:28,960
Speaker 2: Really really intriguing. So it's twenty twenty six, I'm legally

638
00:36:29,000 --> 00:36:33,240
Speaker 2: obligated to ask how do you use artificial intelligence in research,

639
00:36:33,320 --> 00:36:36,360
Speaker 2: portfolio construction or operations at Merrick Capital.

640
00:36:37,120 --> 00:36:40,160
Speaker 3: Sure, I would sort of make two points. I'm an

641
00:36:40,160 --> 00:36:42,279
Speaker 3: AI optimist. That's not one of my two points, so

642
00:36:42,320 --> 00:36:46,560
Speaker 3: that doesn't count. We use it every day. We build

643
00:36:46,600 --> 00:36:48,680
Speaker 3: stuff more quickly, we build our own tools, and we

644
00:36:48,719 --> 00:36:51,120
Speaker 3: build the more quickly than we ever could before. You know,

645
00:36:51,160 --> 00:36:53,520
Speaker 3: the guys on the team, they're building stuff at their

646
00:36:53,560 --> 00:36:55,480
Speaker 3: desk in a week that would have taken a year

647
00:36:55,960 --> 00:36:58,799
Speaker 3: to do somewhere else. Literally, And I know because I've

648
00:36:58,800 --> 00:37:01,239
Speaker 3: been in that, and once you built it, it would have

649
00:37:01,239 --> 00:37:03,279
Speaker 3: taken like six months to get approval to release it

650
00:37:03,320 --> 00:37:07,160
Speaker 3: into your et cetera. This is like light speed versus

651
00:37:07,160 --> 00:37:12,000
Speaker 3: what we used to do. Now changing a little bit

652
00:37:12,080 --> 00:37:15,919
Speaker 3: of how you frame that question. AI is a really

653
00:37:15,960 --> 00:37:21,600
Speaker 3: really interesting thing in financial markets as well. Okay, so

654
00:37:21,640 --> 00:37:23,200
Speaker 3: I don't think we're there yet, but we're going to

655
00:37:23,200 --> 00:37:24,680
Speaker 3: get to a place where people are using it for

656
00:37:24,800 --> 00:37:27,120
Speaker 3: risk management, they're using it for compliance, they're using it

657
00:37:27,200 --> 00:37:30,719
Speaker 3: for KYC. Put all that aside. The most interesting to

658
00:37:30,760 --> 00:37:33,719
Speaker 3: me right now is we look at the AI cap

659
00:37:33,920 --> 00:37:37,560
Speaker 3: x boom and we say, here's a product that is

660
00:37:37,880 --> 00:37:41,719
Speaker 3: commercial real estate with securitization technology around it. You're talking

661
00:37:41,719 --> 00:37:44,839
Speaker 3: about where is it? Is it built? If not? How

662
00:37:44,880 --> 00:37:46,560
Speaker 3: long is it going to take to build it? Who

663
00:37:46,640 --> 00:37:49,120
Speaker 3: are the tenants, how long are the lease is, what

664
00:37:49,160 --> 00:37:52,200
Speaker 3: are they paying? What's it worth when it's all done?

665
00:37:52,400 --> 00:37:55,080
Speaker 3: Is there residual risk like you have in an auto lease,

666
00:37:56,520 --> 00:37:59,960
Speaker 3: Only some of it comes to the securitized market because

667
00:38:00,160 --> 00:38:02,000
Speaker 3: it's just not that that market is not big enough

668
00:38:02,000 --> 00:38:04,200
Speaker 3: for it, So it comes to the corporate bond market.

669
00:38:04,400 --> 00:38:07,560
Speaker 3: So that to us is like, that's the type of

670
00:38:07,600 --> 00:38:13,239
Speaker 3: opportunity that piques our interest, where we say, this is

671
00:38:13,360 --> 00:38:18,759
Speaker 3: something that looks like ABC and its being wrapped up

672
00:38:18,960 --> 00:38:22,839
Speaker 3: and put into a different market. That is asking one, two, three,

673
00:38:22,840 --> 00:38:26,160
Speaker 3: And those are good questions, but it's really like, put

674
00:38:26,200 --> 00:38:28,919
Speaker 3: it all together, look at all the factors. What are

675
00:38:29,040 --> 00:38:32,240
Speaker 3: the additional Are you getting more structure, are you getting less?

676
00:38:32,680 --> 00:38:34,799
Speaker 3: Are you charging for the risk? Are you paying a

677
00:38:34,800 --> 00:38:37,200
Speaker 3: way for it? So the AI cap X Boom to

678
00:38:37,280 --> 00:38:41,000
Speaker 3: us is actually like a source of very cheap risk

679
00:38:41,080 --> 00:38:42,520
Speaker 3: for us to look at. And each one has a

680
00:38:42,560 --> 00:38:44,879
Speaker 3: little bit of different flavor and we're very opinionative about

681
00:38:44,920 --> 00:38:45,680
Speaker 3: which ones we like.

682
00:38:46,040 --> 00:38:49,120
Speaker 2: Huh. It sounds it sounds really fascinating. It also sounds

683
00:38:49,239 --> 00:38:55,000
Speaker 2: like anytime there's a novel area, the opportunity for mispricing

684
00:38:55,640 --> 00:38:57,680
Speaker 2: seems to really there's that.

685
00:38:57,840 --> 00:39:01,840
Speaker 3: There's that we look get some of those first time issuers.

686
00:39:01,880 --> 00:39:04,319
Speaker 3: We have like we have some things in the book.

687
00:39:04,320 --> 00:39:07,319
Speaker 3: We have something called the north Star Playbook, which is

688
00:39:08,040 --> 00:39:10,799
Speaker 3: what are companies and bonds that have clear missions and

689
00:39:10,840 --> 00:39:13,879
Speaker 3: objectives that they can execute on, that are aligned with

690
00:39:13,960 --> 00:39:17,080
Speaker 3: us with the instrument that we have, or misaligned or

691
00:39:17,160 --> 00:39:21,280
Speaker 3: that they're not able to execute. But some of it

692
00:39:21,280 --> 00:39:24,600
Speaker 3: it's actually not just about the novel structures. Let's look

693
00:39:24,640 --> 00:39:27,680
Speaker 3: at agency mortgage backed securities. Those have been around for

694
00:39:27,719 --> 00:39:31,560
Speaker 3: a long time. Okay, A couple of weeks ago, tweet

695
00:39:31,560 --> 00:39:33,560
Speaker 3: from the pre or whatever we call a post on

696
00:39:33,640 --> 00:39:37,880
Speaker 3: truth Social four twenty six pm, I've instructed my representatives

697
00:39:37,880 --> 00:39:42,760
Speaker 3: to buy two hundred billion of agency MBS boom bomb

698
00:39:43,080 --> 00:39:45,600
Speaker 3: in the agency mortgage back market. This is a there

699
00:39:45,640 --> 00:39:50,320
Speaker 3: are was it twelve billion, twelve trillion of these things outstanding?

700
00:39:50,360 --> 00:39:53,719
Speaker 3: And the agency mortgage market is nine trillion, hundreds of

701
00:39:53,760 --> 00:39:56,480
Speaker 3: billions of a trade every day. And that was a

702
00:39:56,480 --> 00:40:01,400
Speaker 3: after market post tweet. And what are you gotta do

703
00:40:01,440 --> 00:40:02,600
Speaker 3: with the vaxity event?

704
00:40:02,960 --> 00:40:06,680
Speaker 2: So then are you out buying into that that rise

705
00:40:06,719 --> 00:40:09,360
Speaker 2: to take advantage. Are you are you price taker or

706
00:40:09,360 --> 00:40:11,720
Speaker 2: a price maker? What are you doing when that that's happening?

707
00:40:11,920 --> 00:40:14,200
Speaker 3: It's both. We look instantly like what does this mean?

708
00:40:14,239 --> 00:40:15,360
Speaker 3: What was our expectation?

709
00:40:15,480 --> 00:40:15,600
Speaker 2: Now?

710
00:40:15,640 --> 00:40:19,200
Speaker 3: In that instance, we expected the GSS who will be

711
00:40:19,239 --> 00:40:21,360
Speaker 3: the ones who actually buy it? We expected the GSS

712
00:40:21,400 --> 00:40:24,600
Speaker 3: to be buyer. I think our view was a little

713
00:40:24,600 --> 00:40:26,640
Speaker 3: bit at the high side or out of consensus. Even

714
00:40:26,920 --> 00:40:28,960
Speaker 3: we thought this is going to be a support mechanism

715
00:40:29,000 --> 00:40:30,560
Speaker 3: for this market over the course of the year. Fan

716
00:40:30,640 --> 00:40:32,120
Speaker 3: and Freddie are going to buy a lot of this.

717
00:40:32,120 --> 00:40:34,440
Speaker 2: Stuff, assuming they haven't already started to.

718
00:40:34,680 --> 00:40:36,759
Speaker 3: They had been, and that's a great point. They had been,

719
00:40:37,200 --> 00:40:40,160
Speaker 3: but buying two hundred billion with like an after market tweet,

720
00:40:40,160 --> 00:40:42,080
Speaker 3: and nobody knew, like, is it going to be two

721
00:40:42,160 --> 00:40:43,800
Speaker 3: hundred and then another two hundred? Are you going to

722
00:40:43,840 --> 00:40:45,960
Speaker 3: start buying? Are going to buy forty tomorrow? How's this

723
00:40:46,040 --> 00:40:50,200
Speaker 3: all going to work? This exceeded even our expectations, and

724
00:40:50,280 --> 00:40:53,960
Speaker 3: you saw right away. I think we were positioned for

725
00:40:54,040 --> 00:40:58,000
Speaker 3: that type of event. We were positioned to take advantage

726
00:40:58,040 --> 00:41:00,359
Speaker 3: of some of the policy risk as opposed to get

727
00:41:00,440 --> 00:41:02,960
Speaker 3: hit by some of the policy risk. You could see

728
00:41:03,000 --> 00:41:06,880
Speaker 3: that there was a massive short covering rally right after that,

729
00:41:08,040 --> 00:41:11,560
Speaker 3: and you could see that that wasn't necessarily people's expectations

730
00:41:11,560 --> 00:41:15,160
Speaker 3: and how they were how they were set up for I.

731
00:41:15,120 --> 00:41:17,319
Speaker 2: Have a mortgage related question for this, but I'm going

732
00:41:17,360 --> 00:41:19,600
Speaker 2: to save it to the next segment coming up. We

733
00:41:19,760 --> 00:41:23,520
Speaker 2: continue our conversation with Matt Trewin, co founder and chief

734
00:41:23,560 --> 00:41:29,000
Speaker 2: investment officer of Merrick Capital, discussing credit and risk in

735
00:41:29,040 --> 00:41:32,800
Speaker 2: today's markets. I'm Barry Ritolts. You're listening to Masters in

736
00:41:32,880 --> 00:41:49,799
Speaker 2: Business on Bloomberg Radio. I'm Barry Dults. You're listening to

737
00:41:49,920 --> 00:41:53,680
Speaker 2: Masters in Business on Bloomberg Radio. My extra special guest

738
00:41:53,680 --> 00:41:56,760
Speaker 2: this week is Matt Trewin, co founder and chief investment

739
00:41:56,800 --> 00:42:00,840
Speaker 2: officer of Merrik Capital. Previously, he spent twenty five or

740
00:42:00,880 --> 00:42:04,919
Speaker 2: so years running credit and various types of risks at JP,

741
00:42:05,000 --> 00:42:08,760
Speaker 2: Morgan Chase and City Group. So we were talking earlier

742
00:42:08,840 --> 00:42:13,480
Speaker 2: about the Trump tweet directing the GCS to buy two

743
00:42:13,520 --> 00:42:16,680
Speaker 2: hundred billion dollars worth of agency paper. You would have

744
00:42:16,800 --> 00:42:21,680
Speaker 2: thought that should have sent yields, plumbing and mortgage rates down,

745
00:42:21,800 --> 00:42:25,319
Speaker 2: which would stimulate the housing market. I assume part of

746
00:42:25,360 --> 00:42:29,000
Speaker 2: the motivation for that tweet and for that purchase. What

747
00:42:29,280 --> 00:42:31,480
Speaker 2: what's going on in that market? And why does it

748
00:42:31,520 --> 00:42:35,560
Speaker 2: seem so difficult to drive rates lower?

749
00:42:36,400 --> 00:42:39,680
Speaker 3: Right, that's a great question. And as silly as it sounds,

750
00:42:39,680 --> 00:42:41,279
Speaker 3: like two hundred billion, it's just.

751
00:42:41,280 --> 00:42:44,239
Speaker 2: Not enough pocket cash, right, walking around money.

752
00:42:45,600 --> 00:42:46,160
Speaker 3: That's one way.

753
00:42:46,440 --> 00:42:49,680
Speaker 2: I mean in a twelve trillion dollars market for twelve trillion,

754
00:42:49,760 --> 00:42:50,520
Speaker 2: it's not even one.

755
00:42:50,600 --> 00:42:52,759
Speaker 3: Yeah, sure if you are if you've got thirty five

756
00:42:52,800 --> 00:42:57,200
Speaker 3: trillion in treasuries outstanding, and yeah, yeah, it's a big

757
00:42:57,280 --> 00:43:01,520
Speaker 3: number and it moves the needle, but what they really

758
00:43:01,560 --> 00:43:04,440
Speaker 3: want to move it and keep it there? Like that's

759
00:43:04,520 --> 00:43:06,800
Speaker 3: a little bit of a hard part because don't forget

760
00:43:07,080 --> 00:43:10,319
Speaker 3: that the Fed owns two point two trillion, so they're

761
00:43:10,360 --> 00:43:14,360
Speaker 3: gonna buy two hundred billion. Didn't give a lot of

762
00:43:14,400 --> 00:43:17,400
Speaker 3: information and that sort of helped them in that moment.

763
00:43:18,200 --> 00:43:21,400
Speaker 3: The lack of information after probably led some of it

764
00:43:21,440 --> 00:43:23,399
Speaker 3: to kind of like bleed out and unwind a bit.

765
00:43:23,680 --> 00:43:26,320
Speaker 3: But the Fed owns two point two trillion and those

766
00:43:26,360 --> 00:43:30,120
Speaker 3: are paying off and that's approximately one hundred eighty billion

767
00:43:30,440 --> 00:43:33,479
Speaker 3: a year. So then you start to think about, like, well,

768
00:43:33,719 --> 00:43:37,239
Speaker 3: if the rate moves and mortgage prices go up. Are

769
00:43:37,280 --> 00:43:40,640
Speaker 3: some of the money managers going to sell one hundred

770
00:43:40,719 --> 00:43:43,160
Speaker 3: billion over time and to kind of neutralize it? So

771
00:43:43,600 --> 00:43:48,160
Speaker 3: I think it's helpful, it's indicative. Here's the real takeaway

772
00:43:48,160 --> 00:43:51,560
Speaker 3: for us. Okay, So at that moment, it's how do

773
00:43:51,600 --> 00:43:53,479
Speaker 3: we trade this, what's the price, what's the next step?

774
00:43:53,480 --> 00:43:55,920
Speaker 3: But then we're really thinking from there like what does

775
00:43:55,960 --> 00:44:01,480
Speaker 3: this mean, what's going to happen next? And of coming

776
00:44:01,480 --> 00:44:03,839
Speaker 3: full circle. What it really does is show you how

777
00:44:03,880 --> 00:44:07,879
Speaker 3: hard they're going to try to drive the mortgage rate down,

778
00:44:08,160 --> 00:44:12,799
Speaker 3: to drive rates down overall, to sign up for an

779
00:44:12,840 --> 00:44:17,080
Speaker 3: agenda and a plan to get rates down. Okay, So

780
00:44:17,160 --> 00:44:18,560
Speaker 3: some of it is what do we do in that

781
00:44:18,640 --> 00:44:20,759
Speaker 3: specific market, and some of it is how is it

782
00:44:20,840 --> 00:44:23,480
Speaker 3: informing our view of the bigger picture.

783
00:44:23,840 --> 00:44:28,560
Speaker 2: So you guys have two I don't want to say conflicting,

784
00:44:28,680 --> 00:44:34,080
Speaker 2: but somewhat different risk factors you're juggling with. Obviously, when

785
00:44:34,120 --> 00:44:37,200
Speaker 2: you buy paper, you're thinking long term and we want

786
00:44:37,239 --> 00:44:41,160
Speaker 2: to watch this play out to our broader thesis. But

787
00:44:41,239 --> 00:44:44,480
Speaker 2: at the same time you're actively trading on the short term.

788
00:44:45,760 --> 00:44:48,440
Speaker 2: How much do these compliment each other or do you

789
00:44:48,480 --> 00:44:52,719
Speaker 2: ever find yourself long in one duration of the portfolio

790
00:44:52,800 --> 00:44:55,279
Speaker 2: and short in another. How do you balance this out?

791
00:44:55,400 --> 00:44:57,479
Speaker 3: Yeah, I mean we have longs and shorts across the book,

792
00:44:57,600 --> 00:45:01,520
Speaker 3: within mortgages, within credit, we there were you know, long

793
00:45:01,560 --> 00:45:03,600
Speaker 3: what we like and short what we don't. Keep it

794
00:45:03,640 --> 00:45:09,520
Speaker 3: super simple or long what helps contribute to our thesis

795
00:45:09,640 --> 00:45:12,279
Speaker 3: or protect and vice versa, and you know protect the

796
00:45:12,320 --> 00:45:16,719
Speaker 3: Knvecci profile that we're looking to achieve. We are, we

797
00:45:16,800 --> 00:45:20,239
Speaker 3: trade every day, We are active in these markets. It's

798
00:45:20,360 --> 00:45:23,879
Speaker 3: part of more of a sort of a medium term

799
00:45:24,120 --> 00:45:26,520
Speaker 3: thought process how they're going to play out, but every

800
00:45:26,600 --> 00:45:30,640
Speaker 3: day is iterating on that. Is this still what we think?

801
00:45:30,960 --> 00:45:33,279
Speaker 3: Are we positioned with the best version of it? Do

802
00:45:33,280 --> 00:45:36,239
Speaker 3: we have the bonds that are going to contribute to

803
00:45:36,280 --> 00:45:39,399
Speaker 3: what we are trying to achieve? Like right now, we're

804
00:45:39,520 --> 00:45:43,920
Speaker 3: very focused on the flywheels that exist within financing markets.

805
00:45:43,960 --> 00:45:46,520
Speaker 3: And if you think about what does that mean? Okay,

806
00:45:46,560 --> 00:45:49,200
Speaker 3: so rates come lower, we talk rates go lower. We

807
00:45:49,239 --> 00:45:51,600
Speaker 3: talked about that a little bit. But credit spreads are

808
00:45:51,640 --> 00:45:55,880
Speaker 3: also really tightening. And when rates are lower and credit

809
00:45:55,920 --> 00:45:59,200
Speaker 3: spreads are tight tighter, your cost of borrowing has gone down.

810
00:46:00,160 --> 00:46:02,759
Speaker 3: You can refinance all sorts of assets. It means some

811
00:46:02,840 --> 00:46:05,560
Speaker 3: assets are even at that point in time worth more

812
00:46:06,040 --> 00:46:09,440
Speaker 3: valued highly. Now that it's worth more, you've got a

813
00:46:09,520 --> 00:46:12,560
Speaker 3: lower LTV loan that you could take out an even

814
00:46:12,920 --> 00:46:15,880
Speaker 3: tighter credit spread on And how do these spin and

815
00:46:15,920 --> 00:46:17,680
Speaker 3: what is this? So this is very much what we're

816
00:46:17,719 --> 00:46:21,920
Speaker 3: thinking about now. I think the market completely underestimates the

817
00:46:22,080 --> 00:46:25,640
Speaker 3: power of those flywheels and what it can be achieved.

818
00:46:25,760 --> 00:46:28,960
Speaker 3: So that is one of we look at our portfolio,

819
00:46:29,000 --> 00:46:31,759
Speaker 3: say we want to have about twenty trades in it,

820
00:46:31,840 --> 00:46:33,759
Speaker 3: and a trade is not one line. A trade could

821
00:46:33,800 --> 00:46:37,600
Speaker 3: be thirty line, I guess, but the flywheel is a trade.

822
00:46:37,640 --> 00:46:39,560
Speaker 3: It's a little bit of a maybe even a bigger

823
00:46:39,719 --> 00:46:44,320
Speaker 3: higher order one. But we look at what is happening

824
00:46:44,719 --> 00:46:47,759
Speaker 3: at that moment. Is there something to take advantage of?

825
00:46:48,080 --> 00:46:52,480
Speaker 3: But also what are the ripple effects of what's happening

826
00:46:52,520 --> 00:46:55,040
Speaker 3: in that moment, and what does the market need to do?

827
00:46:55,239 --> 00:46:57,960
Speaker 3: What is it going to do? Does it understand this?

828
00:46:58,160 --> 00:47:00,839
Speaker 3: And then we unpack it and say where the opportunity.

829
00:47:01,080 --> 00:47:04,520
Speaker 3: So coming back to what we talked about, we believe

830
00:47:04,600 --> 00:47:08,319
Speaker 3: when you look at the world through this lens, we

831
00:47:08,400 --> 00:47:13,399
Speaker 3: look at markets through the Marrick lens, that the lack

832
00:47:13,440 --> 00:47:16,120
Speaker 3: of connections made through these markets and the lack of

833
00:47:16,200 --> 00:47:21,960
Speaker 3: extracting from some pretty obvious pockets are an opportunity and

834
00:47:22,360 --> 00:47:26,320
Speaker 3: like we talked about, to improve your return and reduce

835
00:47:26,320 --> 00:47:29,560
Speaker 3: your risk. And it's a process. So it's just as

836
00:47:29,640 --> 00:47:34,200
Speaker 3: much a process and a machine through which you're extracting

837
00:47:34,320 --> 00:47:37,719
Speaker 3: alpha from the market. We have our views, we hope

838
00:47:37,719 --> 00:47:42,239
Speaker 3: to be right. It's also it's a process through which

839
00:47:42,239 --> 00:47:45,560
Speaker 3: you work through these markets that you extract all the time.

840
00:47:45,680 --> 00:47:48,160
Speaker 3: And the mandate is pretty clear, Like as I think

841
00:47:48,160 --> 00:47:50,560
Speaker 3: of it, the mandate is very clear. You need to

842
00:47:50,560 --> 00:47:52,360
Speaker 3: make money when markets go up, and you need to

843
00:47:52,360 --> 00:47:56,960
Speaker 3: make money when markets go down every day, every month,

844
00:47:57,200 --> 00:48:00,239
Speaker 3: every quarter, every year, and you probably won't. That's the

845
00:48:00,280 --> 00:48:02,560
Speaker 3: mandate and that's what we're going for it, And it's quite

846
00:48:02,600 --> 00:48:04,000
Speaker 3: simple when you frame it out that way.

847
00:48:04,080 --> 00:48:06,840
Speaker 2: You mentioned in twenty nineteen there was a sea change

848
00:48:06,880 --> 00:48:10,760
Speaker 2: in how you perceived what was happening in the market

849
00:48:10,800 --> 00:48:13,760
Speaker 2: and how different that had become. How does that affect

850
00:48:13,880 --> 00:48:18,920
Speaker 2: how you look at and define risk. Risk definitions have

851
00:48:18,960 --> 00:48:22,959
Speaker 2: obviously changed over your career, but twenty nineteen was such

852
00:48:22,960 --> 00:48:27,680
Speaker 2: a sea change. What's different about managing risk today?

853
00:48:27,800 --> 00:48:30,920
Speaker 3: Yeah? I think I believe managing risk at scale is

854
00:48:30,960 --> 00:48:36,160
Speaker 3: a skill. Okay, you have your numbers, and you want

855
00:48:36,160 --> 00:48:38,200
Speaker 3: to know what those are, and those are indicators, and

856
00:48:38,239 --> 00:48:41,759
Speaker 3: those are starting places. Var is a number and a

857
00:48:41,800 --> 00:48:46,040
Speaker 3: starting place and an indicator. Stress is unnumbered DV one

858
00:48:46,280 --> 00:48:49,520
Speaker 3: Cso one these are we I like to look at

859
00:48:49,560 --> 00:48:52,880
Speaker 3: the world in a stress based framework and we create

860
00:48:52,880 --> 00:48:56,480
Speaker 3: a bunch of different stresses. Some are quite simple. Rates

861
00:48:56,480 --> 00:48:59,520
Speaker 3: go uprates go down, credit crunch, a flight to quality.

862
00:49:00,320 --> 00:49:02,719
Speaker 3: We had our little like you know, we're getting little

863
00:49:02,719 --> 00:49:04,839
Speaker 3: punched from. We had one we call QI forever and ever.

864
00:49:06,680 --> 00:49:10,319
Speaker 3: And looking at these it's really about like it's a

865
00:49:10,320 --> 00:49:13,879
Speaker 3: starting place for a conversation, okay, because you do need

866
00:49:13,920 --> 00:49:16,480
Speaker 3: to know where it's coming from, and what's the attribution,

867
00:49:17,080 --> 00:49:20,319
Speaker 3: what's the return attribution, where's it where you're hoping it

868
00:49:20,360 --> 00:49:23,320
Speaker 3: comes from, and what's the risk attribution? And very importantly

869
00:49:23,680 --> 00:49:28,440
Speaker 3: what could go wrong? Understanding that what you're trying to achieve,

870
00:49:28,480 --> 00:49:30,480
Speaker 3: but knowing where the exits are. Like, I think it's

871
00:49:30,520 --> 00:49:34,919
Speaker 3: really like a philosophy to risk and to managing risk

872
00:49:35,239 --> 00:49:40,000
Speaker 3: to make sure you're pointed to achieve your goals while

873
00:49:40,800 --> 00:49:44,880
Speaker 3: managing your risk properly and knowing what you would do

874
00:49:44,960 --> 00:49:47,680
Speaker 3: if things changed, Right, you have a plan and then

875
00:49:47,760 --> 00:49:48,400
Speaker 3: things change.

876
00:49:49,719 --> 00:49:53,840
Speaker 2: Really really interesting when you're looking out at a variety

877
00:49:53,840 --> 00:49:58,320
Speaker 2: of different opportunities, what do you think today presents the

878
00:49:58,360 --> 00:50:03,880
Speaker 2: best risk opportunity? Looking at structured credit corporates relative value,

879
00:50:03,400 --> 00:50:05,600
Speaker 2: what is really drawing your attention?

880
00:50:05,960 --> 00:50:08,160
Speaker 3: Yeah, we really thought that one of the places to

881
00:50:08,360 --> 00:50:13,080
Speaker 3: extract from the flywheel is in securitized markets. Actually, as

882
00:50:13,120 --> 00:50:17,880
Speaker 3: an example, like we've been very focused on trophy quality

883
00:50:17,880 --> 00:50:20,560
Speaker 3: office and gateway cities and this goes back a little ways.

884
00:50:20,640 --> 00:50:25,080
Speaker 2: These are the super a resident commercial realship, right.

885
00:50:25,239 --> 00:50:28,040
Speaker 3: So that all came to be from us pulling at

886
00:50:28,040 --> 00:50:30,240
Speaker 3: the thread of how the financial system works. We talked

887
00:50:30,239 --> 00:50:32,600
Speaker 3: a little bit about the new gips and what you

888
00:50:32,640 --> 00:50:34,680
Speaker 3: had was everybody was going back to work, back to

889
00:50:34,719 --> 00:50:36,759
Speaker 3: the office, but took longer than we kind of looking

890
00:50:36,800 --> 00:50:39,399
Speaker 3: back on it, that took a long time. The part

891
00:50:39,440 --> 00:50:42,000
Speaker 3: of the financial system that was changing were those new

892
00:50:42,080 --> 00:50:45,600
Speaker 3: g sibs, Apollo, Ares, KKR, Blackstone, black Rock, and they

893
00:50:45,640 --> 00:50:47,520
Speaker 3: were coming back to the office and they were growing,

894
00:50:47,800 --> 00:50:50,200
Speaker 3: and they were finding that two things. One they needed

895
00:50:50,280 --> 00:50:52,879
Speaker 3: nice offices to kind of you know, get everybody where

896
00:50:52,880 --> 00:50:55,040
Speaker 3: they want them to be, but also they were growing

897
00:50:55,440 --> 00:50:57,799
Speaker 3: and they outgrew what they had and then they went

898
00:50:57,840 --> 00:51:01,080
Speaker 3: looking for more and what they found was there's actually

899
00:51:01,200 --> 00:51:04,840
Speaker 3: not that much trophy real estate out there. And so,

900
00:51:05,040 --> 00:51:08,440
Speaker 3: like our view on the evolving financial system, led us

901
00:51:08,440 --> 00:51:12,160
Speaker 3: to have very strong conviction about a supplied demand imbalance

902
00:51:12,280 --> 00:51:15,120
Speaker 3: in commercial real estate when applied correctly, and then we

903
00:51:15,239 --> 00:51:18,720
Speaker 3: just looked for what's the best place, and it's tightened

904
00:51:18,719 --> 00:51:22,040
Speaker 3: a lot. But actually we think it continues to and

905
00:51:22,160 --> 00:51:25,880
Speaker 3: has been, because it's like the it's continued to be

906
00:51:26,000 --> 00:51:29,400
Speaker 3: one to two steps behind the fundamental So what that

907
00:51:29,440 --> 00:51:31,600
Speaker 3: really means the way we think to wrap it up

908
00:51:31,600 --> 00:51:33,920
Speaker 3: in a nutshell, this is a triple B bond that

909
00:51:33,960 --> 00:51:35,160
Speaker 3: we think is a double.

910
00:51:34,920 --> 00:51:38,920
Speaker 2: A really brilliant because everybody's painting with a broad brush

911
00:51:39,000 --> 00:51:44,240
Speaker 2: of hey, forget bs even a buildings are sixty percent

912
00:51:44,320 --> 00:51:45,600
Speaker 2: occupied in terms.

913
00:51:45,400 --> 00:51:47,640
Speaker 3: But they're not. They're one hundred percent occupied but in

914
00:51:47,719 --> 00:51:48,120
Speaker 3: terms of.

915
00:51:48,200 --> 00:51:51,680
Speaker 2: Staff returning to office, so it's fully leased. But the

916
00:51:52,200 --> 00:51:55,520
Speaker 2: what is it castle key cars or running sixty percent

917
00:51:55,520 --> 00:51:58,080
Speaker 2: of pre pandemic levels in a lot of cities. But

918
00:51:58,280 --> 00:52:02,440
Speaker 2: the A plus the bigger, the JP Morgan's they want

919
00:52:02,480 --> 00:52:05,160
Speaker 2: everybody back in the office, as does Goldman Sachs, as

920
00:52:05,200 --> 00:52:07,799
Speaker 2: does a lot of these places. And they're roll in

921
00:52:07,920 --> 00:52:08,960
Speaker 2: trophy properties.

922
00:52:09,000 --> 00:52:12,640
Speaker 3: And it's not just New York, it's Miami, it's actually

923
00:52:12,640 --> 00:52:15,200
Speaker 3: San France has come a long way. There's certain buildings

924
00:52:15,200 --> 00:52:17,200
Speaker 3: there that we like. We actually, I would say a

925
00:52:17,200 --> 00:52:20,160
Speaker 3: little bit out of consensus. We like DC certain not

926
00:52:20,360 --> 00:52:24,640
Speaker 3: the government buildings, but nice offices. Like we said, this

927
00:52:24,760 --> 00:52:27,200
Speaker 3: is an administration that's in the business of being in business,

928
00:52:27,239 --> 00:52:29,319
Speaker 3: which means you got to go see them and make

929
00:52:29,360 --> 00:52:31,319
Speaker 3: your case. You want to get some business done, which

930
00:52:31,320 --> 00:52:34,080
Speaker 3: means you need lawyers with a nice conference room, that

931
00:52:34,120 --> 00:52:36,200
Speaker 3: need a decent office, and et cetera, et cetera. I mean,

932
00:52:36,480 --> 00:52:38,040
Speaker 3: like it sounds a little good, but you're.

933
00:52:37,840 --> 00:52:39,160
Speaker 2: It's doing business.

934
00:52:39,200 --> 00:52:41,280
Speaker 3: It's true. And so you can see there are certain

935
00:52:41,280 --> 00:52:45,040
Speaker 3: companies that are buying buildings, knocking them down in DC

936
00:52:45,200 --> 00:52:48,080
Speaker 3: and building brand new ones. And there are buildings that

937
00:52:48,120 --> 00:52:50,880
Speaker 3: are being taken offline to convert to REZI. By the way,

938
00:52:51,000 --> 00:52:53,400
Speaker 3: everything we wrapped up in what we said, the conversion

939
00:52:53,440 --> 00:52:57,240
Speaker 3: from office REZI is actually spinning faster now in DC.

940
00:52:58,480 --> 00:53:01,440
Speaker 3: Some buildings are being just outside d C. Some buildings

941
00:53:01,440 --> 00:53:05,240
Speaker 3: are being converted to data centers, so actually like stocks

942
00:53:05,239 --> 00:53:08,200
Speaker 3: being removed all the time. Anyways, it's just an example

943
00:53:08,239 --> 00:53:11,880
Speaker 3: of how like we're pulling on threads and we're finding

944
00:53:12,000 --> 00:53:14,799
Speaker 3: where we can best take advantage of it, and like

945
00:53:14,880 --> 00:53:17,800
Speaker 3: what are the next couple steps and ultimately we're looking

946
00:53:17,880 --> 00:53:21,280
Speaker 3: for what's something that's already gotten better except the price

947
00:53:21,320 --> 00:53:22,200
Speaker 3: hasn't changed yet.

948
00:53:22,920 --> 00:53:27,560
Speaker 2: Huh. That's really that's really interesting. You You've mentioned stress

949
00:53:27,600 --> 00:53:31,880
Speaker 2: scenarios a couple of times. We know that correlations have

950
00:53:31,960 --> 00:53:34,600
Speaker 2: a tendency to go to one and liquidly disappears.

951
00:53:35,239 --> 00:53:39,000
Speaker 3: Well, I think I've seen that personally, right, LIQ disappears.

952
00:53:40,480 --> 00:53:42,960
Speaker 3: I think I would just wrap that up. I make

953
00:53:42,960 --> 00:53:45,480
Speaker 3: two comments that people I say, like one, you don't

954
00:53:45,480 --> 00:53:47,200
Speaker 3: go out of business because your assets. You go out

955
00:53:47,200 --> 00:53:50,520
Speaker 3: of business because your liabilities. And when you start looking

956
00:53:50,560 --> 00:53:52,360
Speaker 3: at that side of the balance sheet first, then you

957
00:53:52,480 --> 00:53:55,319
Speaker 3: understand things a little bit better. And then also you know,

958
00:53:55,440 --> 00:53:58,040
Speaker 3: with with traders and all the people I work for,

959
00:53:58,120 --> 00:53:59,600
Speaker 3: it's really great because some of the people I hired

960
00:53:59,600 --> 00:54:02,040
Speaker 3: a long time ago, there am desent places now. It's

961
00:54:02,400 --> 00:54:04,160
Speaker 3: actually take a lot of pride in the people I've

962
00:54:04,160 --> 00:54:08,120
Speaker 3: worked with who have gone on and done fantastic things.

963
00:54:08,520 --> 00:54:11,480
Speaker 3: I really really hate the phrase money good. Okay, I

964
00:54:11,520 --> 00:54:13,320
Speaker 3: don't think anybody should be allowed to say it.

965
00:54:13,760 --> 00:54:13,960
Speaker 2: Hmm.

966
00:54:14,800 --> 00:54:19,080
Speaker 3: It is this like false crutch. I also, in many,

967
00:54:19,080 --> 00:54:22,560
Speaker 3: many conversations, have said to people, I think you're right.

968
00:54:22,600 --> 00:54:24,879
Speaker 3: In fact, you've convinced me. I believe you are right.

969
00:54:24,920 --> 00:54:26,960
Speaker 3: I'm just saying, you know you're going to get fired

970
00:54:27,000 --> 00:54:29,480
Speaker 3: long before we know the answer to this question. Okay,

971
00:54:29,640 --> 00:54:31,919
Speaker 3: let's take everything we thought, everything we've known, and let's

972
00:54:31,920 --> 00:54:34,080
Speaker 3: put it into the context of how do we apply

973
00:54:34,160 --> 00:54:37,080
Speaker 3: this in markets? What's going to happen, what's everybody else doing,

974
00:54:37,840 --> 00:54:39,719
Speaker 3: and how do we take advantage of that?

975
00:54:40,440 --> 00:54:43,799
Speaker 2: Huh, really really fascinating. Last question before I get to

976
00:54:43,920 --> 00:54:47,759
Speaker 2: my favorite questions, what do you think investors.

977
00:54:47,160 --> 00:54:48,560
Speaker 3: Those were your favorite questions?

978
00:54:48,560 --> 00:54:52,480
Speaker 2: Oh? No, you'll see the favorite question. All right, what

979
00:54:52,560 --> 00:54:55,840
Speaker 2: do you think investors in the credit and all space

980
00:54:56,040 --> 00:54:59,760
Speaker 2: are not talking about but perhaps should be. What topics

981
00:54:59,760 --> 00:55:04,920
Speaker 2: as sets, geographies, data points are getting overlooked but really shouldn't.

982
00:55:05,160 --> 00:55:09,160
Speaker 3: Yeah, so that's a great question. We touch on a

983
00:55:09,200 --> 00:55:12,319
Speaker 3: little bit. They're underestimating the power of this flywheel. Like

984
00:55:12,719 --> 00:55:15,359
Speaker 3: with the background I've had and we've talked about, and

985
00:55:15,560 --> 00:55:17,279
Speaker 3: I've seen a lot of things blow up, Like we

986
00:55:17,280 --> 00:55:19,120
Speaker 3: could come up with a lot of examples of things

987
00:55:19,160 --> 00:55:23,200
Speaker 3: that could go wrong. I think they're underestimating the things

988
00:55:23,200 --> 00:55:26,560
Speaker 3: that could go right, or what the power of financing

989
00:55:27,080 --> 00:55:32,040
Speaker 3: and the mechanics around financing and the provision of liquidity

990
00:55:32,400 --> 00:55:34,879
Speaker 3: and credit credit spreads when they're good and when they're tight,

991
00:55:34,920 --> 00:55:38,000
Speaker 3: and when the machine is flowing, what that financial engineering

992
00:55:38,040 --> 00:55:42,360
Speaker 3: can really do to both unrecover value and create value.

993
00:55:42,400 --> 00:55:46,480
Speaker 3: I think they're underestimating. The other quick thing is in

994
00:55:46,520 --> 00:55:50,360
Speaker 3: the middle of the year, if Kevin Warsh ends up

995
00:55:50,400 --> 00:55:52,800
Speaker 3: sitting in that seat, and if we get a little

996
00:55:52,800 --> 00:55:56,560
Speaker 3: bit of the setup that he's looking for, he's going

997
00:55:56,600 --> 00:55:59,440
Speaker 3: to change everything. Right, So he believes we're going to

998
00:55:59,520 --> 00:56:02,279
Speaker 3: have a big productivity dividend from AI and we're gonna

999
00:56:02,280 --> 00:56:05,839
Speaker 3: have a big productivity dividend from deregulation, and then that

1000
00:56:05,880 --> 00:56:09,400
Speaker 3: would allow you to have lower rates and a smaller

1001
00:56:09,400 --> 00:56:13,360
Speaker 3: fed balance sheet at the same time. And if he

1002
00:56:13,440 --> 00:56:15,880
Speaker 3: gets a little bit of what he needs to craft

1003
00:56:15,920 --> 00:56:19,960
Speaker 3: that argument, we're gonna have a very different second half

1004
00:56:20,000 --> 00:56:21,200
Speaker 3: of twenty six than the first.

1005
00:56:21,760 --> 00:56:24,280
Speaker 2: Really really interesting. All right, let's jump to our favorite

1006
00:56:24,360 --> 00:56:27,040
Speaker 2: questions our speed round. We'll get you guys out of

1007
00:56:27,080 --> 00:56:30,319
Speaker 2: here at a reasonable time. Starting with who are your

1008
00:56:30,360 --> 00:56:32,440
Speaker 2: mentors who helped shape your career?

1009
00:56:33,400 --> 00:56:37,120
Speaker 3: Oh, I've worked for some pretty amazing people, and I

1010
00:56:37,280 --> 00:56:39,840
Speaker 3: tried to learn from every I just had the bosses

1011
00:56:39,880 --> 00:56:42,600
Speaker 3: that I've had. Are you know legends in this industry,

1012
00:56:42,640 --> 00:56:49,320
Speaker 3: whether it's Bruce Richards t and Purlow, Jimmy Dumar, mad Zimes,

1013
00:56:49,440 --> 00:56:53,240
Speaker 3: Daniel Pinto. I mean, these are people who defined these

1014
00:56:53,280 --> 00:56:56,480
Speaker 3: markets and they all had a huge impact on my career.

1015
00:56:56,920 --> 00:57:00,080
Speaker 2: Really interesting. Let's talk about books. What are you reading now?

1016
00:57:00,120 --> 00:57:01,200
Speaker 2: What are some of your favorites?

1017
00:57:02,120 --> 00:57:04,880
Speaker 3: Oh, you know, but like I am in front of

1018
00:57:04,880 --> 00:57:07,239
Speaker 3: a computer screen and reading so much, and I read

1019
00:57:07,400 --> 00:57:09,920
Speaker 3: so much analytics, research, et cetera. I get home, it's

1020
00:57:09,920 --> 00:57:11,799
Speaker 3: a little bit more like hang out with my wife

1021
00:57:11,800 --> 00:57:13,200
Speaker 3: and kids and a little TV.

1022
00:57:14,960 --> 00:57:17,480
Speaker 2: Well that's my next question. What are you listening to

1023
00:57:17,680 --> 00:57:22,160
Speaker 2: or streaming? Give us your favorite next, Netflix, Amazon, Prime, whatever.

1024
00:57:22,400 --> 00:57:25,440
Speaker 3: I will watch pretty much anything Tailor Sheridan. You know,

1025
00:57:25,560 --> 00:57:26,360
Speaker 3: like we just.

1026
00:57:26,280 --> 00:57:28,920
Speaker 2: Finished season two of Land Minute's so good.

1027
00:57:28,800 --> 00:57:33,160
Speaker 3: Like Landman, All the Yellowstones, everyone, nineteen eighteen twenty three,

1028
00:57:33,280 --> 00:57:36,040
Speaker 3: nineteen to all of those lion any of.

1029
00:57:35,960 --> 00:57:38,640
Speaker 2: Those Lioness was also great. This should be a new

1030
00:57:38,680 --> 00:57:40,600
Speaker 2: season of that coming out one of these days.

1031
00:57:41,640 --> 00:57:43,680
Speaker 3: Yeah, there is. I mean I think I've watched both

1032
00:57:43,720 --> 00:57:45,040
Speaker 3: seasons like one hundred times.

1033
00:57:45,640 --> 00:57:48,200
Speaker 2: Final two questions, what sort of advice would you give

1034
00:57:48,240 --> 00:57:53,560
Speaker 2: to a college grad interesting career in investing, credit trading,

1035
00:57:53,640 --> 00:57:54,200
Speaker 2: what have you?

1036
00:57:54,640 --> 00:57:56,600
Speaker 3: I just think it's not you know, it doesn't have

1037
00:57:56,720 --> 00:57:59,400
Speaker 3: to be a commitment for life. Just look at it

1038
00:57:59,440 --> 00:58:03,560
Speaker 3: as what's something I'm interested in being interested in. I

1039
00:58:03,560 --> 00:58:05,840
Speaker 3: think you can pick the kind of people you work with,

1040
00:58:05,880 --> 00:58:08,240
Speaker 3: and you want to be around good people who will

1041
00:58:08,280 --> 00:58:10,680
Speaker 3: teach you, who will support what you're doing, and just say,

1042
00:58:10,720 --> 00:58:12,160
Speaker 3: I'm going to give this a spin for three to

1043
00:58:12,200 --> 00:58:14,840
Speaker 3: five years, and if I like it, I love it,

1044
00:58:15,440 --> 00:58:18,640
Speaker 3: maybe I'll sign up for another five. But you know,

1045
00:58:18,800 --> 00:58:21,320
Speaker 3: you have an opportunity to try something out and see

1046
00:58:21,320 --> 00:58:21,880
Speaker 3: if it's for you.

1047
00:58:22,400 --> 00:58:24,480
Speaker 2: And our final question, what do you know about the

1048
00:58:24,520 --> 00:58:30,960
Speaker 2: world of trading, credit investing in alternative sources of liquidity

1049
00:58:31,360 --> 00:58:34,520
Speaker 2: and other products that would have been helpful twenty five

1050
00:58:34,600 --> 00:58:37,040
Speaker 2: or so years ago when you were just getting your

1051
00:58:37,120 --> 00:58:37,760
Speaker 2: legs onto you.

1052
00:58:38,600 --> 00:58:42,240
Speaker 3: I wish I knew a fraction of what we are

1053
00:58:42,280 --> 00:58:46,120
Speaker 3: applying at Marek any point before we did this. If

1054
00:58:46,120 --> 00:58:49,920
Speaker 3: I knew a drop of what we're doing when I

1055
00:58:49,960 --> 00:58:53,000
Speaker 3: sat in other seats, yeah, I'll put that all in

1056
00:58:53,040 --> 00:58:54,440
Speaker 3: the I wish I knew Bucky.

1057
00:58:55,280 --> 00:58:57,040
Speaker 2: Really, really, absolutely fascinating.

1058
00:58:57,080 --> 00:58:57,360
Speaker 3: Matt.

1059
00:58:57,360 --> 00:58:59,480
Speaker 2: Thank you for being so generous, Thanks for having with

1060
00:58:59,520 --> 00:59:02,480
Speaker 2: your time, and we have been speaking with Matt Sherwin.

1061
00:59:02,600 --> 00:59:06,240
Speaker 2: He's co founder and chief investment officer of Mare Capital.

1062
00:59:06,840 --> 00:59:09,760
Speaker 2: If you enjoy this conversation, well, be sure and check

1063
00:59:09,760 --> 00:59:13,320
Speaker 2: out any of the previous six hundred or so we've

1064
00:59:13,360 --> 00:59:16,240
Speaker 2: done over the past twelve years. You can find those

1065
00:59:16,280 --> 00:59:23,360
Speaker 2: at iTunes, Spotify, Bloomberg YouTube, wherever you get your favorite podcasts.

1066
00:59:23,800 --> 00:59:25,760
Speaker 2: I would be remiss if I didn't thank the correct

1067
00:59:25,760 --> 00:59:29,000
Speaker 2: team that helps us with these conversations together each week.

1068
00:59:29,280 --> 00:59:35,160
Speaker 2: Alexis Noriega is my video producer. Sean Russo is my researcher.

1069
00:59:35,520 --> 00:59:39,960
Speaker 2: Ana Luke is my podcast producer. I'm Barry Rutaults. You've

1070
00:59:39,960 --> 00:59:43,600
Speaker 2: been listening to Masters in Business on Bloomberg Radio.