WEBVTT - Risk and Reward with Marek Capital Co-Founder Matt Cherwin 0:00:02.480 --> 0:00:15.440 Bloomberg Audio Studios, Podcasts, radio news. This He's Master's in 0:00:15.520 --> 0:00:21.160 Business with Barry Ritholts on Bloomberg Radio. 0:00:21.640 --> 0:00:25.119 This week on the podcast, another extra special guest, Matt 0:00:25.120 --> 0:00:28.960 Sherwin is co founder and chief investment officer at Merrek Capital. 0:00:29.040 --> 0:00:32.440 He'd previously spent sixteen years at JP Morgan Chase and 0:00:32.479 --> 0:00:35.760 then a bunch of years at City Group beforehand, running 0:00:35.760 --> 0:00:40.920 all sorts of spread markets, head of securitized product, lots 0:00:40.960 --> 0:00:44.960 of CIO and risk management titles. I came to no 0:00:45.120 --> 0:00:49.360 Maerk through a live event we did Atloomberg last year. 0:00:49.720 --> 0:00:53.440 I found that his approached to credit and trading is 0:00:53.479 --> 0:00:57.720 absolutely fascinating, and what Marek is doing is really quite interesting. 0:00:58.200 --> 0:01:00.480 I thought the conversation was brilliant, and I think you 0:01:00.520 --> 0:01:05.319 will also with no further ado, my conversation with Merreck Capitals. 0:01:05.880 --> 0:01:20.280 Matt Sherwin, Matt Scharnwin, Welcome to Bloomberg. 0:01:20.440 --> 0:01:22.119 Thanks for having me. This is exciting. That was kind 0:01:22.120 --> 0:01:24.120 of That was a bigger wind up than I was. 0:01:24.760 --> 0:01:27.920 I like, I like a big wind up because it 0:01:27.920 --> 0:01:30.440 gives us an opportunity to roll back to the beginning 0:01:30.560 --> 0:01:34.120 and say, all right, Bachelors and economics from the University 0:01:34.160 --> 0:01:38.000 of Pennsylvania. What was the original career plan. I don't 0:01:38.040 --> 0:01:41.120 imagine people going to college and saying I want to 0:01:41.160 --> 0:01:42.880 be the head of global spread markets. 0:01:43.520 --> 0:01:47.480 No. But that's super interesting because our oldest is a 0:01:47.520 --> 0:01:50.040 sophomore in college now and he's in the business school 0:01:50.040 --> 0:01:52.560 to American and I was just talking to him yesterday 0:01:52.680 --> 0:01:55.240 and he said, I'm now in I think they call 0:01:55.280 --> 0:01:57.200 it like finance for Business. I really liked this new 0:01:57.200 --> 0:02:00.480 class and I said to him, that remind finds me 0:02:00.600 --> 0:02:03.720 so well of when I was in undergrad business school 0:02:04.120 --> 0:02:06.160 and I did the first couple of semesters at ECON 0:02:06.800 --> 0:02:07.520 and I hated it. 0:02:08.639 --> 0:02:11.040 And I had a similar experience, and it was like. 0:02:12.120 --> 0:02:15.280 You know, I shouldn't have hated it as much as 0:02:15.280 --> 0:02:19.880 I did, but at the time, uh, it was ilm curves, 0:02:19.880 --> 0:02:21.880 it was supply, it was demand, et cetera. And it 0:02:22.040 --> 0:02:24.760 just it felt it didn't feel very practical to me, 0:02:24.919 --> 0:02:26.600 and I didn't do very well and I didn't go 0:02:26.600 --> 0:02:28.600 to class very often. I didn't do very well. But 0:02:28.680 --> 0:02:31.200 then we got to kind of the next semester, which 0:02:31.240 --> 0:02:33.320 I think they called finance one oh one and was 0:02:33.440 --> 0:02:37.400 like bond math, discounted cash flows, and I was like, 0:02:37.400 --> 0:02:39.480 oh this, I like, okay, I am in the right worl. 0:02:39.480 --> 0:02:41.760 Well, it's much more realistic and you're not dealing with 0:02:41.840 --> 0:02:45.080 homo economy because that is this theoretical. 0:02:46.600 --> 0:02:49.280 Looking back on, I wish I had listened a bit 0:02:49.320 --> 0:02:51.919 more at some of those others. But you know something 0:02:51.960 --> 0:02:54.440 I say, maybe we'll get to is like it just 0:02:55.360 --> 0:02:57.079 in recommendation would give to other people. It took me 0:02:57.120 --> 0:03:00.560 a little while to realize what I was introd in, 0:03:01.040 --> 0:03:04.600 what I was interested in being interested in. And when 0:03:04.680 --> 0:03:07.040 I got into some of those classes, kind of the 0:03:07.080 --> 0:03:09.360 more financi kind of stuff, I was like this, I 0:03:09.440 --> 0:03:11.720 like this makes sense. I want to learn more, and 0:03:11.800 --> 0:03:13.840 I think that's kind of where it's right. So I 0:03:13.840 --> 0:03:15.800 always wanted to I just like, when there's you know, 0:03:15.919 --> 0:03:17.799 numbers on the page, it adds up to something you're 0:03:17.800 --> 0:03:20.000 trying to make money. It's hopefully positive at the end, 0:03:20.000 --> 0:03:23.720 it might be negative. It's pretty clear cut at least 0:03:23.720 --> 0:03:26.360 the goal is And I always like that, always gravitating. 0:03:26.400 --> 0:03:31.680 So economics way too abstract and academic, but business and 0:03:31.760 --> 0:03:35.960 finance practical, applicable, real life usage. 0:03:36.080 --> 0:03:37.800 Yeah, which is interesting too because I also I'm a 0:03:37.800 --> 0:03:41.000 little bit like this a little exaggerate, but I'm a 0:03:41.040 --> 0:03:43.240 little bit of like a history buff, so like it 0:03:43.320 --> 0:03:46.480 was interesting that that what didn't didn't appeal to me 0:03:46.480 --> 0:03:48.400 because I do like kind of the history of it. 0:03:48.480 --> 0:03:50.920 How did we get here? And I think that's always 0:03:50.920 --> 0:03:56.120 something that I'm like in this form as well, going 0:03:56.200 --> 0:04:00.560 back to learn more about financial systems, how much works, 0:04:00.600 --> 0:04:03.080 how they thought it used to work, different schools of thoughts, 0:04:03.080 --> 0:04:06.680 and I think it really helps you understand where you've been, 0:04:06.760 --> 0:04:07.960 where you are, where you're going. 0:04:08.520 --> 0:04:10.520 So when you look back when you were a group 0:04:10.600 --> 0:04:15.920 treasurer or chief investment officer at the JP Morgan division 0:04:16.000 --> 0:04:18.839 you were, you were involved in, what sort of lessons 0:04:18.839 --> 0:04:21.000 did you take away from that? You're you're in the 0:04:21.040 --> 0:04:26.280 real world managing real risk, real portfolios. How did that 0:04:26.320 --> 0:04:28.040 experience change how you perceive risk? 0:04:28.160 --> 0:04:31.680 Yeah, it's a great question, and I'll tell you so. Obviously, 0:04:31.680 --> 0:04:35.400 I had a career with a background in trading, running 0:04:35.440 --> 0:04:38.200 trading teams both on the buy side and the cell side, 0:04:38.440 --> 0:04:42.159 and it was really that experience that this next piece 0:04:42.160 --> 0:04:47.000 that was transformative for me, and you know, really brought 0:04:47.040 --> 0:04:49.919 us to the point where my partner, Derek Woman and 0:04:49.960 --> 0:04:52.400 I decided let's form Eric and you know, I'm sure 0:04:52.400 --> 0:04:55.080 we'll get into that a bit. But what happened was 0:04:55.240 --> 0:05:00.560 I spent twenty odd years trading mortgages, rates, corporate high 0:05:00.640 --> 0:05:04.440 yield products like that, working with specialty finance companies, some 0:05:04.480 --> 0:05:06.160 that I worked with, some I had a hand in 0:05:06.279 --> 0:05:11.719 running this kind of universe, and then in late twenty nineteen, 0:05:12.400 --> 0:05:14.960 the opportunity to move over, and this was different building, 0:05:15.120 --> 0:05:18.440 different Waldorf, key card, different team, and be the CIO 0:05:18.520 --> 0:05:22.279 and the treasurer. So this is now by side running 0:05:22.360 --> 0:05:25.559 the capital of the firm, the investment of the firm, 0:05:26.040 --> 0:05:28.359 hedging and managing structure was lots of things wrapped up 0:05:28.400 --> 0:05:31.800 in there. But the real thing was the point in 0:05:31.839 --> 0:05:36.600 time where this happened was late twenty nineteen. A few 0:05:36.640 --> 0:05:39.360 days later was the repo crisis. If we remember that, 0:05:40.120 --> 0:05:42.400 when all of a sudden, if you wanted to borrow 0:05:42.440 --> 0:05:46.640 overnight against treasuries, it costs you ten percent. Okay, six 0:05:46.680 --> 0:05:51.160 months after that pandemic breaks out. And why bring that up? 0:05:51.360 --> 0:05:56.480 Is so much changed in dramatic size, at rapid speed 0:05:56.920 --> 0:06:01.080 that I saw something I'd never seen before, and it 0:06:01.320 --> 0:06:04.640 was how does the financial system really work? And what 0:06:04.680 --> 0:06:08.240 does it mean? And how does it apply to everything 0:06:08.320 --> 0:06:10.960 that I've done? And it was one of these moments 0:06:11.000 --> 0:06:13.880 where I felt like I just went from being the 0:06:13.920 --> 0:06:15.720 captain of the ship, you know, my own little thing, 0:06:15.800 --> 0:06:17.760 right will be a little expansive with it. I went 0:06:17.800 --> 0:06:19.960 from being the captain of the ship to going to 0:06:20.000 --> 0:06:23.240 work in the engine room and seeing the actual gearing 0:06:23.400 --> 0:06:25.880 and how it works and how it doesn't and what 0:06:25.920 --> 0:06:29.000 could stop it from working. And you spend years, you know, 0:06:29.040 --> 0:06:30.800 you pull a lever, you think the boat goes faster, 0:06:30.880 --> 0:06:32.919 but you don't know why, and you don't know what 0:06:32.960 --> 0:06:34.760 could stop it from doing that. You don't know what 0:06:34.800 --> 0:06:37.400 could make it work more efficiently. But now you go 0:06:37.440 --> 0:06:38.919 work in the engine room and you see it and 0:06:38.920 --> 0:06:41.400 you understand it. It was just this aha moment, Like we're 0:06:41.400 --> 0:06:44.320 two guys with glasses, right, So you know, when you 0:06:44.400 --> 0:06:48.000 go to the you get a new prescription, you get 0:06:48.000 --> 0:06:49.840 your new glasses, you put them on, You're like, oh 0:06:49.880 --> 0:06:53.800 my god, I can see right. And by the way, 0:06:53.839 --> 0:06:56.120 how was I walking around the streets of Manhattan with 0:06:56.200 --> 0:06:59.760 that old prescription? But now I can see clearly, and honestly, 0:07:00.000 --> 0:07:02.480 twenty odd years into my career. That's how I felt 0:07:02.520 --> 0:07:02.760 to that. 0:07:03.120 --> 0:07:04.520 Moment in twenty nineteen. 0:07:05.000 --> 0:07:07.479 Yeah, I would say like in early twenty twenty, about 0:07:07.520 --> 0:07:09.800 six months in, it was kind of like, oh my goodness, 0:07:10.120 --> 0:07:11.040 it's coming together. 0:07:11.160 --> 0:07:11.320 Now. 0:07:11.360 --> 0:07:14.440 I wish I wish I had known this for the 0:07:14.480 --> 0:07:17.680 twenty years that preceded this, but I felt like, now 0:07:17.720 --> 0:07:19.960 I know nothing and I'm starting. 0:07:19.600 --> 0:07:23.200 To learn, so I have to ask. So my experience 0:07:23.200 --> 0:07:27.000 with twenty nineteen was that wobble seemed to go by 0:07:27.080 --> 0:07:32.240 so quickly compared to eight oh nine, where you know, 0:07:32.440 --> 0:07:35.760 to me, you saw a lot of warning signs, first 0:07:35.800 --> 0:07:40.040 in housing and then in securitized product, and then in construction, 0:07:40.160 --> 0:07:43.320 and then you know, the market didn't peak till October seven, 0:07:43.800 --> 0:07:47.400 and the next eighteen months were kind of fun if 0:07:47.440 --> 0:07:48.800 you were on the right side of it, but if 0:07:48.840 --> 0:07:53.720 you weren't, it must have been a bloodbath. It sounds 0:07:53.800 --> 0:07:58.160 like you derived more out of the twenty nineteen experience. 0:07:58.640 --> 0:08:01.680 Then you're on a desk eight O nine. What sort 0:08:01.720 --> 0:08:05.160 of scar tissue did that leave? How? Yeah, informative was that? 0:08:05.400 --> 0:08:07.600 That's really interesting the way you kind of put those together. 0:08:07.840 --> 0:08:12.320 And so to set the table a bit O seven. 0:08:12.720 --> 0:08:15.880 When I got to JP Morgan, lad O six seven, 0:08:16.080 --> 0:08:19.800 eight oh nine, I was in charge of had a team. 0:08:19.920 --> 0:08:24.000 We traded asset backed security, say, credit cards, auto student loans, 0:08:24.760 --> 0:08:31.720 subprime mortgages. Remember those clos so really kind of like 0:08:31.840 --> 0:08:35.839 the center of what ended up happening after that. And 0:08:36.000 --> 0:08:41.440 I would say it was so overwhelming at the time. 0:08:41.520 --> 0:08:43.280 I mean, we were there two in the morning, hand 0:08:43.400 --> 0:08:47.880 marking bonds, okay, walking across the street between the two buildings, like, 0:08:48.080 --> 0:08:51.520 is there more information this company might buy that company 0:08:51.559 --> 0:08:55.840 before the market opens? What else can we do? The 0:08:55.920 --> 0:08:58.440 numbers were huge. It was almost like a bit more 0:08:58.480 --> 0:09:01.800 than you could process at the time. But I think 0:09:01.880 --> 0:09:05.080 each one of these became every step there was like 0:09:05.440 --> 0:09:08.520 I understand what I'm doing better now because the first 0:09:08.559 --> 0:09:10.600 thing I ever did was I started I was a 0:09:10.600 --> 0:09:14.320 cash flow structure. And actually, at that point in time, 0:09:15.280 --> 0:09:17.440 the guy who ran the department was a friend of 0:09:17.440 --> 0:09:20.080 mine named Bruce Richards, who went on to start Marathon 0:09:20.600 --> 0:09:24.120 and has had a fantastic career, and we keep in 0:09:24.160 --> 0:09:26.560 touch and he said, I said, I want to be 0:09:26.559 --> 0:09:27.760 a trader, and he said, well, I want you to 0:09:27.800 --> 0:09:30.920 be a structure because if you learn how the cash 0:09:30.920 --> 0:09:33.000 flow works, how the structure works, then you'll be a 0:09:33.000 --> 0:09:35.920 better trader later on. I think each piece helped me 0:09:36.200 --> 0:09:38.839 understand the risk better, and then the system it sits in, 0:09:39.040 --> 0:09:40.920 and that helps you understand the risk better. And then 0:09:40.960 --> 0:09:43.360 when you understand the risk better, you understand the system 0:09:43.400 --> 0:09:45.640 it sits in better, and it builds and it builds 0:09:45.679 --> 0:09:47.960 on top of each other. So I would say in 0:09:48.240 --> 0:09:52.640 eight I learned more. In eight we saw we felt 0:09:52.679 --> 0:09:54.640 like we were the tip of the spear in like 0:09:54.679 --> 0:09:57.600 a bad way, and we could see it was getting worse, 0:09:57.640 --> 0:10:00.200 and it was accelerating, and we could see the people 0:10:00.240 --> 0:10:04.600 were maybe even underestimating. And I remember some conversations around 0:10:04.640 --> 0:10:09.400 at the time that we were basically saying, like, think bigger, 0:10:09.600 --> 0:10:13.480 think broader, think worse. That's the context we're talking about. 0:10:13.559 --> 0:10:16.440 But all of that helped me understand how does my 0:10:16.960 --> 0:10:19.679 product I'm trading fit into an investment bank? How's an 0:10:19.720 --> 0:10:23.559 investment bank impact the system. I think when I went 0:10:23.559 --> 0:10:28.160 into twenty nineteen, obviously a lot time had passed, I'd 0:10:28.160 --> 0:10:31.840 had more experiences, et cetera. I remember sitting in a meeting. 0:10:32.200 --> 0:10:35.760 We're in seven thirty am traders meeting. This is with 0:10:35.880 --> 0:10:39.200 the CIO group, and we go around the table, my 0:10:39.720 --> 0:10:43.000 rates lead, my credit lead, et cetera, and the REPO 0:10:43.120 --> 0:10:46.000 guys walk in and they say, hey, we can lend 0:10:46.000 --> 0:10:49.680 against treasuries at ten percent? Should we do more? And 0:10:49.760 --> 0:10:53.800 I said, guys, this is my third day with this team. Okay, 0:10:55.920 --> 0:10:57.920 I'm the person in the room who knows the least 0:10:58.600 --> 0:11:02.280 about what you're talking about. But if you need my authorization, 0:11:02.760 --> 0:11:03.120 you have it. 0:11:03.160 --> 0:11:06.960 Because that sounds pretty great. 0:11:05.679 --> 0:11:09.560 That's fantastic. My response to you is how much can 0:11:09.559 --> 0:11:10.959 we not? Can we do more? 0:11:11.040 --> 0:11:11.120 Like? 0:11:11.360 --> 0:11:15.959 How much can we do? Meaning more and more? And 0:11:15.960 --> 0:11:18.960 that just became the beginning of like, why did that happen? 0:11:19.559 --> 0:11:22.160 How did we get here? What's the where did it 0:11:22.200 --> 0:11:24.280 come from? Where does it go? And I found that 0:11:24.320 --> 0:11:27.320 certain people knew certain pieces but not the picture. And 0:11:27.360 --> 0:11:30.079 then you're like it was just starting to pull. 0:11:29.880 --> 0:11:32.000 Out, and that was your job to the whole picture. 0:11:32.200 --> 0:11:36.040 It became it became the only It became the focus 0:11:36.080 --> 0:11:39.320 of what I wanted to know, because unpacking that would 0:11:39.360 --> 0:11:41.800 help me understand how do we get here, why does 0:11:41.840 --> 0:11:44.000 this happen? And by the way, what are the pieces 0:11:44.040 --> 0:11:48.680 that put this all together? And how do we how 0:11:48.720 --> 0:11:51.199 do we take advantage of that? How do we protect ourselves, 0:11:51.200 --> 0:11:52.880 but also how do we take advantage of that? So 0:11:53.080 --> 0:11:56.439 is this the whole thing? Was this one of those 0:11:56.480 --> 0:11:58.120 types of things you say, I opened up a door, 0:11:58.320 --> 0:12:00.000 three doors behind it, and I want to keep going 0:12:00.040 --> 0:12:03.560 in that direction. And it felt to me like a 0:12:03.600 --> 0:12:07.760 purer and purer version of everything I'd done in my career. 0:12:07.800 --> 0:12:11.359 Getting closer and closer to the source in pricing. 0:12:11.240 --> 0:12:13.800 Really really fascinating. One of the things I think a 0:12:13.800 --> 0:12:18.520 lot of people don't realize about JP Morgan Chase during 0:12:18.559 --> 0:12:23.280 the financial crisis, and I never doing the research for 0:12:23.360 --> 0:12:28.400 Balot Nation, I never got this really source the way 0:12:28.400 --> 0:12:32.679 I would have liked to. But JP Morgan Chase had 0:12:32.720 --> 0:12:37.320 their own derivative scare a couple of years earlier, and 0:12:37.360 --> 0:12:40.080 the word was Jamie just said, clear all this junk 0:12:40.240 --> 0:12:42.920 off of our balance sheet, we don't we can't handle 0:12:42.960 --> 0:12:46.079 this risk doesn't seem to be worth the potential upside. 0:12:46.160 --> 0:12:49.440 So heading into eight oh nine, they weren't dealing with 0:12:49.480 --> 0:12:56.760 the same sort of existential danger that Merrill, Lynch and Wells, 0:12:56.840 --> 0:13:00.640 Fargo and go down the list all had to go through. 0:13:01.320 --> 0:13:06.000 They were ended up being an acquirer of distress assets, 0:13:06.640 --> 0:13:09.520 not a seller of distressed assets. 0:13:09.559 --> 0:13:11.480 Well, I think. I mean, it was a tremendous place 0:13:11.520 --> 0:13:15.000 to work. I worked with incredible people. I learned a lot, 0:13:16.280 --> 0:13:18.600 and I worked with great, great people that you're just 0:13:18.640 --> 0:13:24.040 part of a terrific team, fantastic place. I learned something 0:13:24.120 --> 0:13:28.200 that became transformative to everything I'd spent my career doing. 0:13:28.240 --> 0:13:30.520 So that's why we set out too, and I said, 0:13:30.520 --> 0:13:33.000 I want to do this, and that's why we set 0:13:33.040 --> 0:13:36.120 out to build Merrick. When we said, you know, I 0:13:36.160 --> 0:13:39.160 recalled Derek and I sat down one day and I said, 0:13:39.240 --> 0:13:43.120 let me just here's how I think about markets. I 0:13:43.240 --> 0:13:47.840 think about it in terms of money, capital, credit, liquidity, 0:13:47.960 --> 0:13:53.160 and regulation. That's my five money Capital, credit, liquidity, regulation, MCCLR. 0:13:53.360 --> 0:13:55.240 How do you separate money from capital? 0:13:55.880 --> 0:13:58.880 So I think money to me is how do you 0:13:58.920 --> 0:14:00.760 make it? How do you destroy? How does it move 0:14:00.800 --> 0:14:03.240 through the system. To me, capital is a little bit 0:14:03.240 --> 0:14:06.400 more of how much do you have? How do you 0:14:06.559 --> 0:14:09.000 measure it? How much do you have? Are you making more? 0:14:09.080 --> 0:14:13.280 You destroying it? Credit is really how is it being formed? 0:14:13.320 --> 0:14:15.720 How is it moving through the system. The financial system 0:14:15.800 --> 0:14:18.920 is changing now, It's very different than it was a 0:14:18.920 --> 0:14:22.720 few years ago. We actually when we were really trying 0:14:22.720 --> 0:14:25.920 to get our ideas on paper. We wrote a paper 0:14:25.960 --> 0:14:29.480 that we outline saying we described what we thought was 0:14:29.520 --> 0:14:31.560 the new version of the financial system. We said, the 0:14:31.560 --> 0:14:36.080 financial system is changing, your de facto recreating Glass Steegel. 0:14:36.600 --> 0:14:40.880 You have gesibs. If you come from some of this framework, 0:14:40.920 --> 0:14:46.000 you know, are the globally systematically important banks, systemically important 0:14:46.040 --> 0:14:49.400 banks think JP, Morgan Wells, Bank of America, et cetera. 0:14:50.280 --> 0:14:56.600 We said, there are the new gesips, people like Apollo, Blackstone, KKR, Blackrock. 0:14:57.080 --> 0:14:59.840 These are areas. These are the folks that are actually 0:15:00.040 --> 0:15:03.840 making credit extension decisions in this economy. Okay, you have 0:15:03.960 --> 0:15:08.880 the traders like Citadel, Securities, Jump Chain, some of these 0:15:08.920 --> 0:15:13.360 other names. Everybody's familiar with. This is disaggregating the financial 0:15:13.400 --> 0:15:16.800 system and putting it into different buckets. So basically we 0:15:16.840 --> 0:15:19.400 think about where's it coming from, where does it go, 0:15:19.520 --> 0:15:23.040 who wins, who loses? What are the flywheels here. This 0:15:23.080 --> 0:15:26.760 is a process that we apply to everything we do. 0:15:26.880 --> 0:15:30.440 Some of the guys on the team call it McLear mcclr. 0:15:30.600 --> 0:15:34.160 It's the lens that we look at because we believe 0:15:34.960 --> 0:15:40.400 money capital, credit liquiding regulation drives economies, markets and prices, 0:15:40.840 --> 0:15:45.080 and then you can really start to understand monetary policy, 0:15:45.600 --> 0:15:50.960 real estate housing, the types of specialty finance companies we've 0:15:51.000 --> 0:15:56.600 talked about consumer So this, to me, actually explains how 0:15:56.640 --> 0:15:59.400 it all works, and we apply that. It's a huge 0:15:59.400 --> 0:16:05.040 addressable universe. We trade rates, mortgages, securitized products, corporate credit 0:16:05.120 --> 0:16:10.120 related equities. It's an enormous addressable universe with investors that 0:16:10.200 --> 0:16:13.600 have very narrow mandates that transact to different points in 0:16:13.640 --> 0:16:18.880 time and sometimes non economically imbound by potentially non economic rules, 0:16:19.320 --> 0:16:22.680 which means there are a lot of overlaps that people 0:16:22.760 --> 0:16:24.960 don't take the advantage of, and there's a lot of 0:16:24.960 --> 0:16:28.960 gaps that they quite simply don't bridge. And the setup 0:16:29.360 --> 0:16:33.440 for all of this, I think, and I've seen some stuff. 0:16:34.680 --> 0:16:39.240 A lot of your listeners have seen quite a bunch 0:16:39.280 --> 0:16:41.280 of stuff. We've seen things go right, we've seen things 0:16:41.320 --> 0:16:44.800 go wrong. This is one of the best setups we've 0:16:44.840 --> 0:16:47.200 seen in a long time, and so that's why we 0:16:47.280 --> 0:16:50.760 went out to say, I saw some interesting stuff, I 0:16:50.840 --> 0:16:54.040 learned some interesting stuff. There's an opportunity set that we 0:16:54.080 --> 0:16:57.800 want to prosecute right now, and it is an incredible 0:16:57.880 --> 0:17:00.040 time to do so. So we built a team. 0:17:00.080 --> 0:17:02.880 Sorry, go ahead, I was just gonna ask No, I'm fascinated. 0:17:03.880 --> 0:17:06.080 I want to roll back to something you said earlier, 0:17:06.720 --> 0:17:12.560 which was glass Steegel is sort of being backdoor re applied. 0:17:13.400 --> 0:17:17.479 Is that a function of people being risk averse or 0:17:17.520 --> 0:17:20.239 is that a function of people just specializing in their 0:17:20.280 --> 0:17:24.560 own silo so you don't have, you know, glass Steagel 0:17:24.640 --> 0:17:29.800 for people who aren't. Economic and policy wonks separated the 0:17:30.440 --> 0:17:36.480 FDIC safe banks from the riskier investment banks, and once 0:17:36.560 --> 0:17:39.080 that was repealed in the late nineties, didn't cause the 0:17:39.119 --> 0:17:43.240 financial crisis, but allowed all these banks to merge and 0:17:43.280 --> 0:17:46.520 get bigger, and maybe it made the crisis a little worse, 0:17:46.880 --> 0:17:49.480 But I don't think of it as the underlying cause. 0:17:49.640 --> 0:17:55.520 But the idea that the market is working its way 0:17:55.640 --> 0:17:59.200 back towards that is kind of fascinating. Let me suggress that. 0:17:59.680 --> 0:18:03.200 Right as you laid out, like glass sel to say 0:18:03.240 --> 0:18:06.280 it to oversimplify, basically said like, you can hold deposits, 0:18:06.359 --> 0:18:09.560 you can underwrite securities, you can trade securities, things like that, 0:18:10.400 --> 0:18:15.920 and there were rules right now, there are some rules 0:18:16.440 --> 0:18:18.680 that say what you can and can't do, but really 0:18:18.720 --> 0:18:22.000 there's a lot more that has morphed into what people 0:18:22.040 --> 0:18:24.520 like to call private credit, or we're going to extend 0:18:24.520 --> 0:18:27.440 credit through these fashions, or some of the rules don't 0:18:27.480 --> 0:18:30.800 apply to this group, so we can trade the markets differently, 0:18:30.880 --> 0:18:32.840 or we can make markets in a way that maybe 0:18:33.600 --> 0:18:36.440 the big banks can't. And then the big banks say, well, 0:18:36.520 --> 0:18:39.040 we're viewed as super safe, because I would argue we 0:18:39.119 --> 0:18:41.359 are and that has its advantages also. So it's like 0:18:42.040 --> 0:18:45.960 we created these artificial boundaries. What is great for us 0:18:46.840 --> 0:18:49.320 and the way we look at the world is we 0:18:49.359 --> 0:18:52.600 saw that, we see that, we understand that we also 0:18:52.840 --> 0:18:55.639 see and understand and think about all day long and 0:18:56.080 --> 0:18:59.359 put it into our portfolio construction and the risk that 0:18:59.400 --> 0:19:05.560 we build. It's all up for grabs again, right. So 0:19:05.640 --> 0:19:09.120 we've got Kevin Worsh nominated to be the FED chair 0:19:09.320 --> 0:19:12.960 and Mickey Bowman is the vice chair for supervision, and 0:19:13.040 --> 0:19:17.600 they are no, no, what the right adjective for it is. 0:19:17.640 --> 0:19:21.080 But they're changing the rules and they're pulling some of 0:19:21.119 --> 0:19:24.960 them down, and in my opinion, people just don't understand 0:19:25.080 --> 0:19:28.199 which of them matter and which of them don't, and 0:19:28.240 --> 0:19:31.679 the market moves to place on some that simply don't matter, 0:19:31.920 --> 0:19:34.840 like it's lack of understanding of what SLR was and 0:19:34.880 --> 0:19:36.600 how that worked, and we don't need to dive into that, 0:19:36.640 --> 0:19:39.040 but to simplify, they said, we're going to remove this 0:19:39.200 --> 0:19:41.359 rule and it's a big deal, and we Merek said 0:19:41.960 --> 0:19:45.320 you can take it off. It doesn't matter. So everything 0:19:45.359 --> 0:19:47.560 the market's doing in reaction to that is a potential 0:19:47.600 --> 0:19:48.600 opportunity for us. 0:19:48.800 --> 0:19:52.800 In other words, people are overreacting to a regulatory change 0:19:52.840 --> 0:19:54.600 that is in significant, long time. 0:19:54.560 --> 0:19:55.240 And that example. 0:19:55.320 --> 0:19:58.600 Yeah, coming up. We continue our conversation with Matt Sherwin, 0:19:58.800 --> 0:20:03.920 co founder in chief officer at Merrick Capitol, discussing why 0:20:04.000 --> 0:20:07.960 he launched the firm in twenty twenty four. I'm Barry Ritolts. 0:20:08.040 --> 0:20:22.200 You're listening to Masters in Business on Bloomberg Radio. I'm 0:20:22.240 --> 0:20:26.280 Barry Ridolts. You're listening to Masters in Business on Bloomberg Radio. 0:20:26.480 --> 0:20:29.639 My extra special guest today is Matt Sherwin. He is 0:20:29.760 --> 0:20:33.760 co founder and chief investment officer of Merik Capital, specializing 0:20:34.160 --> 0:20:40.560 in a variety of alternative credit and related private products. Previously, 0:20:40.600 --> 0:20:43.720 he spent sixteen years at JP Morgan Chase, where he 0:20:43.760 --> 0:20:47.919 had a number of very important titles. Before that, City Group, 0:20:48.359 --> 0:20:51.560 are we in all that unique a period of time. 0:20:52.160 --> 0:20:55.280 Is the opportunity set that much greater than what we 0:20:55.440 --> 0:20:58.199 typically see in the normal You know, this is a 0:20:58.200 --> 0:21:03.720 little more geopolitically volatile administration than than even the previous 0:21:03.760 --> 0:21:07.560 Trump administration. Is that a driver or is it the 0:21:07.680 --> 0:21:12.360 deregulation and misapprehension of what these rule changes mean? 0:21:12.480 --> 0:21:14.399 I think it's a combination of what's going on. So 0:21:14.560 --> 0:21:17.480 we have we just kind of use some little catchphrases 0:21:17.520 --> 0:21:19.760 among the team that help us sort of like, you know, 0:21:19.920 --> 0:21:24.440 gravitate around concepts or communicate quickly. We say, this is 0:21:24.480 --> 0:21:26.959 an administration that's in the business of being in business, 0:21:27.640 --> 0:21:31.520 and that's just a there's no opinion or judgment one 0:21:31.520 --> 0:21:33.320 way or the other. It's just it's just a statement 0:21:35.840 --> 0:21:38.960 what this environment is. Also, we also came up with 0:21:39.040 --> 0:21:41.840 something that we thought was just made us chuckle one like, 0:21:41.840 --> 0:21:43.440 it's important to have a little bit of sense of humor. 0:21:43.440 --> 0:21:46.680 We found our investors actually do read the materials very 0:21:46.680 --> 0:21:48.320 closely and they tend to have a sense of humor, 0:21:48.359 --> 0:21:50.440 which is good. But we created this thing we called 0:21:50.440 --> 0:21:53.040 the one big Beautiful chart, uh huh, and we just said, 0:21:53.440 --> 0:21:57.480 you know what they really need, They need rates to 0:21:57.520 --> 0:21:59.560 get down, and they needed to come down a lot 0:21:59.640 --> 0:22:02.439 more them what the market and the curve has already 0:22:02.440 --> 0:22:06.359 priced in because of how much debt the country has, 0:22:06.440 --> 0:22:08.520 what it costs, what they want to come So here's 0:22:08.560 --> 0:22:11.199 what they need to accomplish, and they're going to do 0:22:11.240 --> 0:22:14.680 everything they can to it. So, you know, we construct portfoliot, 0:22:14.760 --> 0:22:17.640 we have an investment thesis, We have a narrative. Everything 0:22:17.640 --> 0:22:20.000 we put in the book has to fit that narrative, 0:22:20.040 --> 0:22:22.440 has to contribute to what we're trying to achieve, has 0:22:22.480 --> 0:22:24.639 to be the best version of that, or has to 0:22:24.680 --> 0:22:27.679 protect us from what could go wrong. So getting back 0:22:27.680 --> 0:22:29.639 to your question a little bit, we think it's a 0:22:29.800 --> 0:22:35.480 very business forward environment, business forward administration. We think that 0:22:35.880 --> 0:22:39.280 it is one that needs rates to come down. We 0:22:39.520 --> 0:22:41.520 are going to have a new FED chair in the 0:22:41.560 --> 0:22:46.080 middle of June, and he'll say all sorts of things 0:22:46.160 --> 0:22:49.159 in the confirmation hearing, but really it will be a 0:22:49.200 --> 0:22:53.760 catalyst potentially for change in the middle of the year. 0:22:54.280 --> 0:22:57.800 And then we have a bias within markets to strip 0:22:57.840 --> 0:23:02.359 back some of the layers of of regulation and away 0:23:02.359 --> 0:23:04.400 from Whether you support that or not, I can tell 0:23:04.440 --> 0:23:06.919