WEBVTT - The Absolute Return Revival with Tony Yoseloff 0:00:02.600 --> 0:00:11.920 Bloomberg Audio Studios, podcasts, radio news. This is Master's in 0:00:12.000 --> 0:00:15.520 Business with Barry Ritholds on Bloomberg Radio. 0:00:17.239 --> 0:00:20.599 This week on the podcast strap Yourself in for another 0:00:20.920 --> 0:00:25.960 spectacular conversation. Tony Joseloff has been with Davidson Kempner pretty 0:00:26.000 --> 0:00:29.560 much his entire career, past twenty seven years. What a 0:00:29.760 --> 0:00:34.159 knowledgeable expert about all things. We used to call it 0:00:34.400 --> 0:00:39.839 distressed credit, now it's opportunistic investing, much more than merely 0:00:39.880 --> 0:00:43.280 being credit driven. They focus on everything from M and 0:00:43.360 --> 0:00:49.239 A arbitrage, to real estate investing, to private equity to 0:00:49.520 --> 0:00:54.040 public debt. A masterclass in how to think about risk, 0:00:54.080 --> 0:00:57.800 how to think about diversification, how to put together a 0:00:58.000 --> 0:01:03.640 portfolio of alt ernatives that is both non correlated to 0:01:03.800 --> 0:01:10.559 your core portfolio but simultaneously creates a form of offset 0:01:11.160 --> 0:01:16.080 or ballast to the volatility of equities. In addition to 0:01:16.240 --> 0:01:20.440 being CIO and Managing partner at Davidson Kempner, he's also 0:01:20.720 --> 0:01:25.240 chairman of the Investment Committee for the New York Public Library. 0:01:25.760 --> 0:01:30.160 He's Vice chairman for the Investment Committee for New York Presbyterian, 0:01:30.840 --> 0:01:34.520 as well as sitting on the board of Trustees and 0:01:34.600 --> 0:01:39.839 the Investment Committee of Princeton University. I thought this conversation 0:01:40.040 --> 0:01:42.360 was fascinating, and I think you will also with no 0:01:42.440 --> 0:01:47.280 further ado my discussion with Davidson Kempner's Tony Yoselov. 0:01:48.760 --> 0:01:52.320 Thank you, Barry. I was going to say, longtime listener, 0:01:52.480 --> 0:01:53.280 first time caller. 0:01:54.400 --> 0:01:59.520 So I'm kind of amazed. I'm kind of overwhelmed by 0:01:59.560 --> 0:02:02.800 your curriculum, vitail, and the fact that you've never been 0:02:02.840 --> 0:02:06.400 in this building, which is kind of amazing because a 0:02:06.440 --> 0:02:10.679 lot of my guests have similar background board seats and 0:02:10.840 --> 0:02:15.079 Dowman's investment committees, and I feel like I know everybody, 0:02:15.120 --> 0:02:17.760 but I don't know everybody. There's a million people I 0:02:17.800 --> 0:02:20.480 haven't met, and you've been on my list for a while. 0:02:20.840 --> 0:02:23.840 So let's just start a little bit with your background, 0:02:23.840 --> 0:02:26.720 which is really kind of interesting. Undergrad you go to 0:02:26.800 --> 0:02:30.680 Princeton School of Public and International Affairs, and then you 0:02:30.760 --> 0:02:35.440 get a jd MBA from Columbia, which leads to the 0:02:35.520 --> 0:02:38.919 obvious question, what were your original career plans? 0:02:39.040 --> 0:02:41.040 You know, it's interesting. So first of all, I've got 0:02:41.080 --> 0:02:44.200 a pretty boring background in the sense that I grew 0:02:44.240 --> 0:02:46.840 up in central New Jersey in a town called East Brunswick, 0:02:47.320 --> 0:02:49.320 I went to college. Sure, I went to college half 0:02:49.320 --> 0:02:51.079 an hour from where I grew up, and then I 0:02:51.160 --> 0:02:53.640 moved to New York City the day after I graduated 0:02:53.639 --> 0:02:55.760 from Princeton and haven't left, and so I've lived within 0:02:55.800 --> 0:03:01.360 a fifty mile radius my entire life. My original career plans, 0:03:01.360 --> 0:03:03.560 to the extent that they were fully formed, would have 0:03:03.600 --> 0:03:07.520 been to do a career in law or potentially public policy. 0:03:08.040 --> 0:03:10.000 My high school happened to have a very good civics 0:03:10.400 --> 0:03:12.440 type program. I think I was probably at the only 0:03:12.440 --> 0:03:14.480 public high school in the United States that produced a 0:03:14.520 --> 0:03:17.280 cabinet member for both the first Trump administration and the 0:03:17.280 --> 0:03:20.040 Biden administration, which I thought was pretty amazing for a 0:03:20.040 --> 0:03:24.160 suburb public high school. It was really during my time 0:03:24.200 --> 0:03:28.040 at Princeton and during my time at Columbia where I 0:03:28.120 --> 0:03:31.040 made the decision to pursue money management as a career 0:03:31.480 --> 0:03:35.800 instead of something in public policy. The nineteen nineties were 0:03:35.800 --> 0:03:38.720 really the heyday, I'm going to say, of mutual funds, 0:03:38.760 --> 0:03:41.360 and it was sort of the early days of electronic 0:03:41.440 --> 0:03:45.840 stock trading. My family is a family of academics and 0:03:45.840 --> 0:03:49.840 book publishers, so it wasn't necessarily through my family background 0:03:49.840 --> 0:03:53.760 that I interested in investing, but it was sort of 0:03:53.800 --> 0:03:55.920 around us in the ether. I did a lot of 0:03:55.920 --> 0:03:58.080 reading on it in high school. In college, I was 0:03:58.120 --> 0:04:00.560 fortunate enough that I had a number of my friend's 0:04:00.600 --> 0:04:02.520 parents were willing to take me out to coffee and 0:04:02.600 --> 0:04:05.520 kind of educate me on the financial services business. And 0:04:05.560 --> 0:04:08.960 really the inflection point was when I was at Columbia, 0:04:09.240 --> 0:04:11.280 where I had to kind of choose a path between 0:04:11.280 --> 0:04:13.960 going to Washington and working for a law firm that 0:04:14.000 --> 0:04:17.120 would have gotten me in the regulatory side of things versus, 0:04:17.160 --> 0:04:19.280 you know, working at a law firm which I did 0:04:19.360 --> 0:04:21.839 for a couple of years as a summer associate where 0:04:22.200 --> 0:04:24.960 the focus was private equity, and that was the path 0:04:25.040 --> 0:04:28.080 I chose, and I sort of never never looked back. 0:04:28.120 --> 0:04:29.880 I'm really glad I have the legal background, and I'm 0:04:29.880 --> 0:04:31.919 really glad I have the public policy background. It's actually 0:04:32.000 --> 0:04:35.320 super helpful as an investor. But it wasn't like, you know, 0:04:35.520 --> 0:04:37.320 I never set out on this path. It's just sort 0:04:37.320 --> 0:04:38.200 of the journey found me. 0:04:38.720 --> 0:04:41.599 I'm kind of fascinated by the joint JDMBA. I have 0:04:41.640 --> 0:04:46.040 a JD. And what I always appreciated about law school 0:04:46.720 --> 0:04:49.080 was that it didn't teach you so much as what 0:04:49.240 --> 0:04:52.440 to think as to how to think, whereas an MBA 0:04:52.720 --> 0:04:56.280 feels more like a deep dive into the specifics of 0:04:56.360 --> 0:05:01.719 investing theory and a lot of aitative analytics. How do 0:05:01.760 --> 0:05:04.840 you find the combination that sort of left brain right 0:05:04.880 --> 0:05:08.760 brain JDNBA works for you as a as an investor. 0:05:08.360 --> 0:05:11.800 Well, it's super helpful. So first of all, I also 0:05:11.839 --> 0:05:14.760 went to law school with the same idea that you did, 0:05:14.800 --> 0:05:19.240 that law school was an amazing education and that good 0:05:19.320 --> 0:05:21.520 things would come out of it, whether I was interested 0:05:21.560 --> 0:05:24.840 in pursuing law or not. I was very fortunate. I 0:05:24.839 --> 0:05:27.640 actually finished all my coursework at Princeton in three years, 0:05:28.040 --> 0:05:30.599 and I had a chance to start Columbia Law School 0:05:30.640 --> 0:05:32.679 during my fourth year at Princeton, which was a program 0:05:32.720 --> 0:05:35.280 that Princeton and Columbia have with each other at the time, 0:05:35.320 --> 0:05:37.280 but very few students did, so I kind of had 0:05:37.279 --> 0:05:40.120 a free look at law school. I enjoyed my time 0:05:40.320 --> 0:05:43.920 at law school. My time working in law just sort 0:05:43.960 --> 0:05:46.760 of made it seem like it wasn't for me ultimately, 0:05:46.800 --> 0:05:49.960 but I think it's a great field that would highly 0:05:50.640 --> 0:05:55.240 recommend it to others. The business school side initially started 0:05:55.279 --> 0:05:58.920 out as a path to getting a job I actually 0:05:58.920 --> 0:06:01.600 found it. You know, it's sort of hard to think today, 0:06:01.720 --> 0:06:03.880 but it wasn't so easy for someone with a law 0:06:03.920 --> 0:06:05.920 degree and no work experience to go work on Wall 0:06:05.920 --> 0:06:08.800 Street in the nineteen nineties. In fact, I had a 0:06:09.000 --> 0:06:11.479 few hr folks. I'd make it pretty far along and 0:06:11.760 --> 0:06:14.000 my recruiting process at different places, and they'd say to me, 0:06:14.360 --> 0:06:15.760 how do we know what you're going to wake up 0:06:15.800 --> 0:06:17.200 caring about finance? How do we know you're going to 0:06:17.240 --> 0:06:19.039 read the Wall Street Journal every day? And so questions 0:06:19.040 --> 0:06:21.080 that kind of seems silly with the benefit of hindsight, 0:06:21.200 --> 0:06:23.920 But you know, I had no financial services background there. 0:06:24.320 --> 0:06:25.920 Once I went to Business School Boom, I had the 0:06:25.920 --> 0:06:29.400 financial services background there. But the courses I took at 0:06:29.400 --> 0:06:33.640 Columbia were exceptional, Like I really enjoyed taking courses, particularly 0:06:33.640 --> 0:06:36.200 the ones that were taught by adjunct professors where they 0:06:36.240 --> 0:06:39.200 had real world experience and so you could learn, you know, 0:06:39.279 --> 0:06:42.760 derivatives from someone who's trading derivatives every day at JP Morgan, 0:06:43.200 --> 0:06:45.640 or I learned about the retail business from someone who 0:06:45.680 --> 0:06:49.200 was a former CEO of a mid sized regional retailer 0:06:49.360 --> 0:06:51.240 department store with a lot of department sportes that period 0:06:51.279 --> 0:06:53.600 of time, and they bring in a different CEO every 0:06:53.640 --> 0:06:56.040 week to talk to you, and that stuff just fascinated me. 0:06:56.120 --> 0:06:58.120 And so if I think about like my Columbia Business 0:06:58.120 --> 0:06:59.800 School education, like, there was a lot of good things 0:07:00.080 --> 0:07:02.599 took from that, and so the combination proved to be 0:07:03.080 --> 0:07:03.919 very powerful for me. 0:07:04.120 --> 0:07:07.360 Huh, really interesting. The data point that always sticks out 0:07:07.360 --> 0:07:11.680 in my head is something like, seven years after graduation, 0:07:12.120 --> 0:07:16.240 fifty percent of JD holders are no longer practicing a law. 0:07:16.720 --> 0:07:18.880 It's like a big feeder for other fields. 0:07:19.040 --> 0:07:21.040 Yeah, and I believe that. I mean, look, I'm very 0:07:21.080 --> 0:07:23.560 fortunate that I went to law school with some folks 0:07:23.560 --> 0:07:25.320 who are literally among the leaders of their field in 0:07:25.320 --> 0:07:28.000 the United States as attorneys. And I also went to 0:07:28.080 --> 0:07:30.040 law school with a number of folks whore no longer attorneys, 0:07:30.360 --> 0:07:32.400 some of whom found that journey immediately like me, some 0:07:32.440 --> 0:07:35.680 of whom found it many years into the future. There's 0:07:35.720 --> 0:07:37.800 no controlling the fact that it's a great education and 0:07:37.880 --> 0:07:39.960 it's a great way to learn how to think, and 0:07:40.040 --> 0:07:41.920 especially for the types of investing we do, it's been 0:07:41.960 --> 0:07:42.640 super helpful. 0:07:42.800 --> 0:07:45.080 So let's talk about some of the investing you do. 0:07:45.400 --> 0:07:49.960 You joined Davidson Kempner in nineteen ninety nine, pretty much 0:07:50.320 --> 0:07:53.200 the peak of the dot com boom. We were at 0:07:53.240 --> 0:07:55.600 that point, you know, a couple of quarters away from 0:07:55.840 --> 0:08:00.000 everything peaking and heading south. Tell us about your experience 0:08:00.160 --> 0:08:04.520 at the tail end of the dot com situation and 0:08:04.920 --> 0:08:06.720 how did that affect how you looked at the world 0:08:06.760 --> 0:08:07.720 of investment. 0:08:07.920 --> 0:08:11.360 You know, it's really interesting, right, So I didn't necessarily 0:08:11.880 --> 0:08:13.840 seek out to do the type of investing that we 0:08:13.880 --> 0:08:17.240 do with Davidson Kepner, which is a combination of opportunistic 0:08:17.280 --> 0:08:22.080 credit and event driven investing. But it actually goes back 0:08:22.080 --> 0:08:24.480 a year earlier to nineteen ninety eight. I was looking 0:08:24.520 --> 0:08:29.200 for summer jobs for the last summer of my JDMBA program, 0:08:29.240 --> 0:08:30.880 and so I applied to a number of the banks. 0:08:30.880 --> 0:08:33.920 I applied to some of the investment shops, and I 0:08:33.920 --> 0:08:37.200 found Davidson Kepner because they posted at Columbia for a 0:08:37.240 --> 0:08:40.200 full time merger arbitrage analyst, and so I didn't really 0:08:40.440 --> 0:08:43.840 know any better. So I sent in a resume and 0:08:43.920 --> 0:08:45.719 I got a call from them and they said, well, 0:08:45.720 --> 0:08:48.440 we think your background is actually really good for then 0:08:48.480 --> 0:08:51.839 what would have been called distress debt and why don't 0:08:51.840 --> 0:08:53.520 you come in and talk to us and work for 0:08:53.600 --> 0:08:57.240 us for summer. So I literally met three partners. They 0:08:57.280 --> 0:09:01.040 offered me a job, and I said, these folks have 0:09:01.080 --> 0:09:03.960 about a billion dollars under management and there's about fifteen 0:09:04.000 --> 0:09:06.680 people working here. That seems like a pretty good ratio 0:09:06.840 --> 0:09:10.480 in terms of number of people to dollars under management. 0:09:10.520 --> 0:09:12.840 And I knew a little bit about distressed at investing, 0:09:12.920 --> 0:09:15.040 just because I had taken a bankruptcy course in law 0:09:15.080 --> 0:09:17.720 school and there was maybe like half of one class 0:09:17.800 --> 0:09:20.280 was devoted to what this was. It was really a 0:09:20.280 --> 0:09:22.960 pretty nascent industry. And so I said, Okay, I can 0:09:23.000 --> 0:09:24.760 go be one of one hundred or two hundred people 0:09:24.840 --> 0:09:27.240 or whatever at a bank training program for the summer, 0:09:27.559 --> 0:09:30.760 or I could be the only person who is doing this. 0:09:30.880 --> 0:09:33.000 And they had hired an intern in the year before, 0:09:33.080 --> 0:09:35.040 so I spoke to him on the phone. His name 0:09:35.080 --> 0:09:38.120 is Dan Zwern. He went on to founding money management 0:09:38.120 --> 0:09:40.960 firm that ultimately didn't work out and now runs Arena Partners. 0:09:41.080 --> 0:09:43.640 And it seemed like a pretty good ratio in terms 0:09:43.679 --> 0:09:46.319 of opportunity. And I got there and it just spoke 0:09:46.360 --> 0:09:48.760 to me, and it spoke to me because I liked 0:09:48.800 --> 0:09:51.120 the fact that I could do a form of investing 0:09:51.120 --> 0:09:54.960 that used both my legal background and my financial background, 0:09:55.040 --> 0:09:57.120 and I felt like there were many areas I might 0:09:57.200 --> 0:09:59.160 spend time on that might do one or the other, 0:09:59.280 --> 0:10:02.280 but wouldn't do both of them. So the joke of 0:10:02.320 --> 0:10:04.040 it is, I'm literally the only person who applied for 0:10:04.040 --> 0:10:07.559 this job. They literally got one resume, and that probably 0:10:07.600 --> 0:10:10.079 speaks as much to the time as it does to 0:10:10.520 --> 0:10:13.800 anyone else. I mean, so, if you weren't doing a 0:10:13.840 --> 0:10:17.679 dot com startup in the late nineteen nineties from Columbia, 0:10:17.960 --> 0:10:19.959 you were going to work in investment banking, or you 0:10:19.960 --> 0:10:22.040 were going to work in consulting. They were like a 0:10:22.160 --> 0:10:23.920 handful of people who were going to work in money 0:10:23.960 --> 0:10:26.679 management at all, Right, that really was not a big area, 0:10:26.720 --> 0:10:29.000 despite the fact you had a big value investing program there. 0:10:29.080 --> 0:10:31.040 At a time, these would have been the more popular 0:10:31.080 --> 0:10:34.360 career paths, and obviously non financial services career paths as well, 0:10:34.880 --> 0:10:37.000 And to me that was kind of fun, Like I 0:10:37.040 --> 0:10:38.920 don't know, I mean, so the first two years of 0:10:38.920 --> 0:10:42.040 my career, Davidson Kaepner, I hated most of what I 0:10:42.080 --> 0:10:44.040 was looking at as an investor, and I kept saying 0:10:44.080 --> 0:10:45.800 no to things. And what I didn't know is that 0:10:45.800 --> 0:10:47.520 was actually the right answer, right. You know, when you 0:10:47.520 --> 0:10:49.520 get to an investing job, you want to put, you know, 0:10:49.559 --> 0:10:51.400 investments on the book, and that makes you feel like 0:10:51.400 --> 0:10:54.280 you're accomplishing things. Most of the companies that were in 0:10:54.320 --> 0:10:56.800 trouble in the late nineteen nineties deserve to be and 0:10:56.840 --> 0:10:58.400 it was because it was sort of a peak of 0:10:59.000 --> 0:11:02.360 financial markets. The really good opportunities probably started three to 0:11:02.400 --> 0:11:05.880 four years into my career. So I felt very proud 0:11:05.880 --> 0:11:08.800 of the fact afterwards that I didn't like anything. But 0:11:08.840 --> 0:11:10.600 at the time I was like, are they just tossing 0:11:10.640 --> 0:11:12.640 me the bad stuff that I'm looking at all these 0:11:12.679 --> 0:11:15.360 investments and not wanting to do them. But it turned 0:11:15.360 --> 0:11:17.040 out no, that was actually what most of the opportunity 0:11:17.080 --> 0:11:17.800 set was in our world. 0:11:17.840 --> 0:11:20.240 In the late night, were you getting guns from senior 0:11:20.280 --> 0:11:23.240 partners or other people who have lived through other distress 0:11:23.280 --> 0:11:26.439 cycles saying, hey, you're doing the right thing. You're looking 0:11:26.440 --> 0:11:28.000 for a diamond in the rough, but most of the 0:11:28.000 --> 0:11:31.320 stuff is too risky relative to the potential upside. 0:11:31.440 --> 0:11:33.800 Yeah, I mean, look, we obviously would try to steer 0:11:34.200 --> 0:11:38.000 our time towards things that were actionable. I definitely was 0:11:38.000 --> 0:11:40.240 getting support. I mean my senior partners. There was two. 0:11:40.280 --> 0:11:42.440 There was Tom, Tom Kaptain or Michael Lefel. I mean, 0:11:42.440 --> 0:11:44.200 those are the only two folks who really were doing distressed. 0:11:44.280 --> 0:11:44.360 No. 0:11:44.440 --> 0:11:47.319 Davidson, Marvin Davidson was still running the firm at the 0:11:47.400 --> 0:11:49.240 very end of his career, but he really deferred to 0:11:49.240 --> 0:11:52.959 Tom and Michael in terms of running the debt portfolios 0:11:53.000 --> 0:11:55.839 that we had at the time. So we found things 0:11:55.960 --> 0:11:58.600 ultimately that would call like solid singles, you know, things 0:11:58.640 --> 0:12:00.480 where like you could, you know, buy bond in the 0:12:00.559 --> 0:12:02.319 mid nineties and there was a takeout at one on 0:12:02.400 --> 0:12:04.560 one and you don't coupon. It wasn't things you were 0:12:04.559 --> 0:12:06.600 going to earn giant amounts of money, but you're gonna 0:12:06.640 --> 0:12:08.520 earn very good IRRs on them. And so I cut 0:12:08.520 --> 0:12:11.160 my teeth doing things where you could put relatively small 0:12:11.160 --> 0:12:12.599 amounts of money to work. And keep in mind we 0:12:12.679 --> 0:12:14.439 had a billion dollars at the time, so you know, 0:12:14.559 --> 0:12:16.719 ten million dollar investment was a one percent investment in 0:12:16.760 --> 0:12:19.160 the fund. It was it was still meaningful to what 0:12:19.200 --> 0:12:19.800 we were doing. 0:12:20.280 --> 0:12:24.920 I'm intrigued that they get one application for an one 0:12:25.040 --> 0:12:28.199 open opening. You got the job and you've been there 0:12:28.240 --> 0:12:32.760 for twenty five years. It kind of talks to how 0:12:32.840 --> 0:12:35.920 we never know what the future holds, and how completely 0:12:36.640 --> 0:12:41.199 random sometimes these things feel. Had you not applied there, 0:12:41.360 --> 0:12:43.800 how might your career have been completely different? 0:12:44.360 --> 0:12:48.360 You have those what if moments in life. I do 0:12:48.480 --> 0:12:51.280 believe in fate to some degree, and I got very 0:12:51.400 --> 0:12:54.920 fortunate with how it all worked out. And look, I 0:12:55.040 --> 0:12:56.640 liked what I was doing, and I liked who I 0:12:56.679 --> 0:12:58.600 was doing it with, And I would say, probably those 0:12:58.600 --> 0:13:00.440 are two of the most important factors that you have 0:13:00.559 --> 0:13:04.160 in choosing a career, is what are you doing and 0:13:04.160 --> 0:13:06.160 who are you doing it with? And so I never 0:13:06.280 --> 0:13:08.080 felt the need to leave. The other thing I would 0:13:08.120 --> 0:13:10.520 say is, you know, Davidson Kamptner is an old school 0:13:11.000 --> 0:13:14.560 Wall Street style partnership where we make new partners every 0:13:14.600 --> 0:13:17.439 couple of years. When partners leave our firm, they get 0:13:17.440 --> 0:13:19.080 an earn out of their shares, and the shares are 0:13:19.120 --> 0:13:22.800 ultimately effectively acquired by the ongoing partners in the firm. 0:13:23.160 --> 0:13:26.440 And that structure existed in the nineteen nineties. We've made 0:13:26.480 --> 0:13:28.719 some changes over the years to it, but a lot 0:13:28.720 --> 0:13:31.000 of it's still substantially similar to what things look like. 0:13:31.360 --> 0:13:32.880 And that's because if you look at the founding of 0:13:32.960 --> 0:13:36.360 Davidson Kamptnor, you know, Marvin Davidson had been a senior 0:13:36.400 --> 0:13:40.640 executive at Bear Stearns and Tom Kaepner was a junior 0:13:40.679 --> 0:13:42.960 person at Goldman Sachs, but knew the Goldman Sacks structure 0:13:43.520 --> 0:13:45.679 quite well, and they didn't know each other when they 0:13:45.720 --> 0:13:48.920 formed the partnership in the mid nineteen eighties, and so 0:13:48.960 --> 0:13:51.640 they came up with an arms length agreement that took 0:13:51.679 --> 0:13:53.880 the best of what they knew from Bear and Goldman, 0:13:54.240 --> 0:13:57.200 and that structure stuck and it sticks today. And so 0:13:57.520 --> 0:13:59.360 what I knew for me was if I did a 0:13:59.360 --> 0:14:01.800 good job, there could be a career for me at 0:14:02.200 --> 0:14:04.720 Davidson Kepner. And so not only did I have like 0:14:04.760 --> 0:14:06.960 people that I liked and a thing I liked doing 0:14:07.040 --> 0:14:09.080 with my time, but I knew if I put my 0:14:09.080 --> 0:14:10.599 head down and did a good job, there was like 0:14:10.640 --> 0:14:12.320 a future there for me. And so that was just 0:14:12.440 --> 0:14:15.000 very very powerful. I mean, I will say, like you 0:14:15.040 --> 0:14:17.240 look back, I mean from when I started for the summer, 0:14:17.240 --> 0:14:19.440 it's almost twenty seven years ago. It does feel like 0:14:19.480 --> 0:14:21.320 a long time, but it never felt that way along 0:14:21.360 --> 0:14:24.960 the way, you know, I mean, you know, with any career, 0:14:24.960 --> 0:14:26.960 there's always good in bad, but overall I've had an 0:14:26.960 --> 0:14:27.760 amazing experience. 0:14:28.240 --> 0:14:30.920 The days are long and the decades are short. You know, 0:14:31.040 --> 0:14:35.120 it's funny you mentioned that Davidson Kepner is a partnership. 0:14:35.680 --> 0:14:38.960 There was a lot of I don't want to say criticism, 0:14:39.040 --> 0:14:43.280 but when a lot of the big Wall Street partnerships 0:14:43.760 --> 0:14:46.600 went public, there was a little bit of pushback and 0:14:46.640 --> 0:14:49.320 some questions, what is this going to do to risk management? 0:14:49.920 --> 0:14:53.080 And when not that much long after we have the 0:14:53.120 --> 0:14:59.040 financial crisis, the companies that were partnerships still with their 0:14:59.120 --> 0:15:02.920 joint in several line ability somehow managed to not get 0:15:02.960 --> 0:15:06.600 into trouble. I guess they were highly focused on putting 0:15:06.640 --> 0:15:10.560 everything at risk. The agency problem with companies that had 0:15:10.600 --> 0:15:14.880 become public where the partners no longer have joined several 0:15:15.320 --> 0:15:18.680 They look at every company that ran into trouble, none 0:15:18.680 --> 0:15:21.120 of them were partnerships. It's kind of fascinating how that 0:15:21.320 --> 0:15:21.920 turns out. 0:15:22.280 --> 0:15:25.120 Yeah. No, I hadn't thought about it that way, but 0:15:25.160 --> 0:15:27.520 I agree with you in terms of your conclusion. And 0:15:27.560 --> 0:15:30.160 you know, look, there's basic building blocks of what you're 0:15:30.200 --> 0:15:33.360 doing in as an investor, as a firm, and who 0:15:33.440 --> 0:15:35.760 you're doing it for you know, So I take like 0:15:36.080 --> 0:15:38.840 the basic building blocks of Davidson Kepner today, which by 0:15:38.840 --> 0:15:41.520 the way, we're similar to what they were twenty seven 0:15:41.600 --> 0:15:45.160 years ago. We're primarily an investing firm, We're not an 0:15:45.200 --> 0:15:48.400 asset gathering firm, and so for us to offer an 0:15:48.400 --> 0:15:52.240 investing fund, my partners and I we want to invest 0:15:52.280 --> 0:15:56.680 our own money side by side with our LPs. We're 0:15:56.680 --> 0:15:59.960 by far the largest single investor collectively in our five 0:16:00.040 --> 0:16:03.200 and so if an investing product is not a good idea, 0:16:03.640 --> 0:16:05.240 we're not going to offer it, even if we have 0:16:05.240 --> 0:16:07.240 clients who would want it, because we can't put our 0:16:07.640 --> 0:16:10.920 you know, imprompt centuur or whatever behind it. 0:16:11.160 --> 0:16:13.480 Or your own money, your own money, and so I think. 0:16:13.360 --> 0:16:17.560 That speaks very powerfully. We require all of our partners 0:16:17.600 --> 0:16:21.760 to reinvest a substantial majority of their networks back into 0:16:21.760 --> 0:16:24.600 the funds every year. We all invest paripes too, across 0:16:24.600 --> 0:16:26.600 our funds, so you can't cherry pick which funds you 0:16:26.640 --> 0:16:28.280 want the partnership straight across. 0:16:28.400 --> 0:16:31.720 Collectively, if you offer it to clients, the partners and 0:16:31.760 --> 0:16:34.720 employees of the firm are the largest investors. 0:16:34.920 --> 0:16:37.720 Yeah, not necessarily in any individual fund, but collectively across 0:16:37.720 --> 0:16:39.760 the funds we are. In any individual fund, we're can 0:16:39.800 --> 0:16:42.000 put a meaningful amount of money relative to the size 0:16:42.120 --> 0:16:42.640 of the fund. 0:16:42.760 --> 0:16:44.080 So you eat your own cooking. 0:16:44.280 --> 0:16:46.360 Yeah, and that's that's the first test to me. I mean, 0:16:46.520 --> 0:16:48.360 you know, in investing, how much money do you have 0:16:48.920 --> 0:16:50.600 in the product? How a skin do you have in 0:16:50.640 --> 0:16:54.000 the game. You know, we obviously use operating partners sometimes 0:16:54.040 --> 0:16:56.480 in our private market investments. That's the first question I ask, 0:16:56.720 --> 0:16:59.000 how much money does the operating partner having the investment? 0:16:59.040 --> 0:17:01.720 And isn't meaningful to them? Right, So sometimes it's not 0:17:01.760 --> 0:17:03.720 just the quantum of money, it's how meaningful it is 0:17:03.760 --> 0:17:07.120 to the person who's who's involved. And again, having a 0:17:07.520 --> 0:17:09.360 being a private firm, you know, we're one hundred percent 0:17:09.440 --> 0:17:12.040 owned by our current and retired partners, with our retired 0:17:12.080 --> 0:17:14.080 partners in an earn out, so they eventually don't own 0:17:14.119 --> 0:17:16.960 shares of the firm anymore. And so you're beholden to 0:17:17.320 --> 0:17:20.840 two constituencies. You're beholden to your LPs and you're beholden 0:17:20.920 --> 0:17:23.600 to yourself and your employees. And you know, that's really 0:17:23.600 --> 0:17:26.080 how we run our business, and so you know, it 0:17:26.119 --> 0:17:27.760 kind of keeps you out of trouble. It also keeps 0:17:27.760 --> 0:17:31.439 you very focused when things are going payd right. You know, 0:17:31.840 --> 0:17:33.440 we have lived through a lot of crises. I lived 0:17:33.440 --> 0:17:36.280 to the Global financial crisis. I lived to the COVID crisis. 0:17:36.320 --> 0:17:39.280 COVID was probably even harder in a way because Tom 0:17:39.359 --> 0:17:42.080 Kaepner had just retired a few months before that, and 0:17:42.600 --> 0:17:44.320 I joke that he left me a playbook for a 0:17:44.320 --> 0:17:46.240 financial crisis, but he didn't leave me a playbook for 0:17:46.240 --> 0:17:48.960 a pandemic. And so some of the hr things we 0:17:48.960 --> 0:17:50.280 all had to deal with, and getting people out of 0:17:50.320 --> 0:17:52.000 the office and getting people back in the office, we 0:17:52.040 --> 0:17:55.280 had to kind of invent along the way. It really 0:17:55.359 --> 0:17:57.720 focuses the mind when you've got your money with your mouth. 0:17:57.840 --> 0:17:59.800 I had to say to say the very least. So 0:18:00.320 --> 0:18:03.280 you brought something up that's really intriguing, And I don't 0:18:03.280 --> 0:18:04.840 know if there's an answer to this, but I just 0:18:04.880 --> 0:18:07.359 want to get your take on it. So over the 0:18:07.400 --> 0:18:12.000 past twenty seven years, we've had a repeated one hundred 0:18:12.040 --> 0:18:15.639 year flood every five or seven years, which, while not 0:18:15.720 --> 0:18:19.280 statistically impossible, certainly seems unlikely. So we have the dot 0:18:19.320 --> 0:18:23.040 com implosion, and then after that nine to eleven, and 0:18:23.080 --> 0:18:25.720 then we have the financial crisis, and then in the 0:18:25.760 --> 0:18:29.280 twenty tens we have Brexit and the threat of Grexit, 0:18:29.320 --> 0:18:33.320 and we have the flash crash, ultimately leading a few 0:18:33.760 --> 0:18:37.919 years later to the pandemic. Does it feel like we 0:18:38.080 --> 0:18:43.080 have these situations, these credit crises, which must be great 0:18:43.119 --> 0:18:46.159 for an opportunistic credit investor, But does it seem like 0:18:46.200 --> 0:18:51.040 they're coming along more frequently than historically? Like my recollection 0:18:51.240 --> 0:18:54.720 is growing up is the SNL crisis and then we 0:18:54.760 --> 0:18:57.359 really didn't have like a major problem until the dot 0:18:57.400 --> 0:19:00.560 com crisis. Are we getting these more frequently or does 0:19:00.600 --> 0:19:01.720 it just feel that way? 0:19:01.800 --> 0:19:03.919 Well, you know, I would maybe say a couple of 0:19:03.920 --> 0:19:06.680 things for that. So, first of all, I think the 0:19:06.720 --> 0:19:09.960 pandemic was an exception compared to some of the other crises, 0:19:10.000 --> 0:19:13.000 because I would suggest that the dot com bubble or 0:19:13.080 --> 0:19:15.920 the GFC, or maybe some of the European crises in 0:19:15.960 --> 0:19:18.760 the mid twenty tens were very predictable, like if you 0:19:18.800 --> 0:19:21.280 looked at where share prices were in the nineteen nineties 0:19:21.320 --> 0:19:24.440 for tech stocks, or how levered banks were with a 0:19:24.440 --> 0:19:26.639 couple with the subprime crisis that was going on in 0:19:26.680 --> 0:19:28.840 the mid two thousands, or you know, some of the 0:19:29.280 --> 0:19:31.600 issues with you know, the sovereign credit in Europe in 0:19:31.640 --> 0:19:34.119 the mid twenty tens, Like those were all with the 0:19:34.119 --> 0:19:36.480 benefit of hindsight, like, oh yeah, of course that was 0:19:36.480 --> 0:19:37.040 going to happen. 0:19:37.240 --> 0:19:39.440 Predictable but not well predicted. 0:19:39.480 --> 0:19:41.960 Predictable but not well predicted. I mean, hindsight's always twenty 0:19:41.960 --> 0:19:45.040 twenty in these things, right, But there was certainly predictable 0:19:45.080 --> 0:19:48.320 by people who were following markets. I would differentiate the 0:19:48.400 --> 0:19:51.080 COVID crisis from the sense that, you know, you probably 0:19:51.160 --> 0:19:53.080 had a month or two head start if you really 0:19:53.080 --> 0:19:56.479 followed what was going on in Wuhan, but fundamentally it 0:19:56.520 --> 0:19:59.200 was much harder to figure that out. Like six months earlier, 0:19:59.400 --> 0:20:01.040 no one was going to say a pandemic was going 0:20:01.080 --> 0:20:05.160 to overwhelm financial markets. And so the reason I want 0:20:05.160 --> 0:20:06.680 to flag that is, you know, we do a lot 0:20:06.680 --> 0:20:09.600 of up down analyses in what we're doing right, and 0:20:09.640 --> 0:20:12.520 we try to really stress test investments, and so when 0:20:12.560 --> 0:20:14.800 you're a credit investor, there's a lot of things that 0:20:14.840 --> 0:20:17.200 you say, well, this can happen, and that can happen, 0:20:17.200 --> 0:20:19.679 but we're still not going to lose money on this investment, right, 0:20:19.680 --> 0:20:21.919 because there's subordination below you one way or another. In 0:20:21.920 --> 0:20:24.440 the capital structure, or there's assets that you can claw 0:20:24.440 --> 0:20:26.600 them on too, that you can sell off, or maybe 0:20:26.640 --> 0:20:30.359 not all those assets are markets driven. COVID created a 0:20:30.400 --> 0:20:33.720 lot of random winners and losers. Sometimes they were winners 0:20:33.720 --> 0:20:36.120 and losers for a year or two and ultimately made 0:20:36.119 --> 0:20:37.680 their way back, And so I think there was some 0:20:37.720 --> 0:20:40.480 more random noise in what happened in COVID. So I 0:20:40.480 --> 0:20:43.600 probably would take less lessons on a going forward basis 0:20:43.600 --> 0:20:45.280 from the COVID crisis than I would take from some 0:20:45.320 --> 0:20:48.399 of these other crises. I do think that you know, 0:20:48.400 --> 0:20:50.440 if you look at a very long period of time 0:20:50.520 --> 0:20:53.239 twenty five years, you had twelve or thirteen of them 0:20:53.240 --> 0:20:55.800 where you had interest rates at zero right or close 0:20:55.840 --> 0:20:57.800 to zero and closer to fifteen when you added up, 0:20:58.119 --> 0:20:59.640 and then the interest rates for most of the rest 0:20:59.640 --> 0:21:01.280 of the time I am. You know, US treasury is 0:21:01.320 --> 0:21:03.439 probably peaked around six percent, a lot of it's been 0:21:03.440 --> 0:21:05.639 four or five percent, and so you know, these have 0:21:05.720 --> 0:21:08.040 been pretty tame periods of time, and so you are 0:21:08.040 --> 0:21:10.720 gonna have an occasional CRISI I mean you go back 0:21:10.760 --> 0:21:13.760 over like long periods of time in finance, I do 0:21:13.840 --> 0:21:17.320 think having the economy blow up every ten years was 0:21:17.320 --> 0:21:21.080 a very you know, eighteen eighties eighteen nineties thing as well, 0:21:21.119 --> 0:21:23.480 and so I think I think history does repeat itself 0:21:23.520 --> 0:21:25.399 a lot. To me. I don't want to say it's 0:21:25.400 --> 0:21:26.960 part of the fun of being an investor, because I 0:21:27.000 --> 0:21:30.200 don't mean to be crassy. And these are people's jobs 0:21:30.200 --> 0:21:30.879 and livelihoods. 0:21:30.960 --> 0:21:33.440 I know exactly what you mean by that. Yeah, because 0:21:33.720 --> 0:21:38.680 if you identify, if you identify something that is potentially 0:21:38.720 --> 0:21:43.159 a great investment opportunity, especially if you're one of the 0:21:43.200 --> 0:21:46.720 few voices talking about it and everybody says, no, no, no, 0:21:46.760 --> 0:21:49.639 that's not a big deal. When the opportunity comes along, 0:21:49.720 --> 0:21:53.360 it's got to be deeply satisfying that you sussed out 0:21:53.400 --> 0:21:56.200 something that the rest of the investment community missed well. 0:21:56.240 --> 0:21:59.640 I mean, one of the fun things about doing opportunistic 0:21:59.680 --> 0:22:02.960 credit is that you need to be a little contrarian, right, 0:22:03.080 --> 0:22:05.760 because you are looking at opportunities that other people have 0:22:05.880 --> 0:22:08.600 turned down. Right. So you know, there's this idea in 0:22:08.680 --> 0:22:12.600 credit or an op credit of good company, bad balance sheet, right, 0:22:12.920 --> 0:22:16.360 and those exist sometimes but not often. And the reality 0:22:16.440 --> 0:22:18.640 is that the market's efficient enough that many people will 0:22:18.640 --> 0:22:20.560 figure out quickly it's a good company with a bad 0:22:20.600 --> 0:22:22.639 balance sheet, and so it's not going to price the 0:22:22.640 --> 0:22:24.600 way it probably would have priced twenty five or thirty 0:22:25.640 --> 0:22:27.639 years ago. But there are a lot of businesses that 0:22:27.720 --> 0:22:30.080 just go through cycles, right, and they may appear to 0:22:30.119 --> 0:22:32.639 be bad businesses today, but they're actually going to be 0:22:32.680 --> 0:22:35.119 great businesses again tomorrow. And it's more of like a 0:22:35.119 --> 0:22:37.119 temporary thing that happens to the business and not a 0:22:37.160 --> 0:22:40.720 permanent thing. And you know, that's where I get really excited. 0:22:40.800 --> 0:22:42.120 I mean, it's interesting. You have to be a little 0:22:42.160 --> 0:22:44.199 bit contrarian to do what we do, but you have 0:22:44.280 --> 0:22:46.639 to also actually be a little bit optimistic when other 0:22:46.680 --> 0:22:49.920 people aren't optimistic. And so you take a bad situation 0:22:50.000 --> 0:22:51.159 and you say, hey, this is how we're going to 0:22:51.200 --> 0:22:53.840 make it good. And sometimes we're actually you know, especially 0:22:53.880 --> 0:22:56.639 in our private market investments, we're applying the elbow grease. 0:22:56.680 --> 0:22:59.280 We're making the management changes to make it better. In 0:22:59.320 --> 0:23:02.960 our public market investments, we're serving on creditors committees and 0:23:03.000 --> 0:23:05.320 often bringing in a new management team to do that. 0:23:05.440 --> 0:23:08.800 Repositioning a business sometimes selling off subsidiaries it don't make 0:23:08.840 --> 0:23:10.399 sense for them to have, or they can't afford to 0:23:10.400 --> 0:23:13.480 have any more. And so yeah, it does feel satisfying, 0:23:13.520 --> 0:23:15.119 you know, three to five years later to look at 0:23:15.119 --> 0:23:18.200 that and say, see how this is perceived today compared 0:23:18.200 --> 0:23:20.919 to how it was perceived when we got involved in it. 0:23:21.000 --> 0:23:23.280 You know, we were among the only people who you know, 0:23:23.320 --> 0:23:25.240 figured this out at the time, or we figured it 0:23:25.240 --> 0:23:28.280 out first or whatever it is, so that you know, 0:23:28.320 --> 0:23:29.800 I sort of you know, as I just said, like, 0:23:29.880 --> 0:23:33.359 that's part of the like enjoyable part of this job. 0:23:33.440 --> 0:23:36.200 Some of the psychic benefit is being first or among 0:23:36.240 --> 0:23:38.160 the first to figure these things out. 0:23:38.800 --> 0:23:44.600 So so last crisis questions, and it might have predated 0:23:44.640 --> 0:23:47.199 you because you probably were still in school during this, 0:23:47.760 --> 0:23:51.320 but before the dot com implosion in the late nineties, 0:23:51.760 --> 0:23:55.159 we had a series of credit problems. First was the 0:23:55.200 --> 0:23:58.680 Asian contagion with the tie Bot crisis. Then we had 0:23:58.680 --> 0:24:02.840 the Russian rubled fault, and then long term capital management 0:24:02.960 --> 0:24:07.159 was the direct result of the Russian default. What was 0:24:07.200 --> 0:24:10.520 your experience during those periods or is that really early 0:24:10.680 --> 0:24:11.320 history to you? 0:24:11.400 --> 0:24:14.679 Yeah, I mean it's literally right when I started, right, 0:24:14.720 --> 0:24:17.639 So I started at Davidson Kaepner as a summer intern 0:24:17.720 --> 0:24:20.040 in May of nineteen ninety eight. And so the Russia 0:24:20.080 --> 0:24:23.280 crisis and the long term capital crisis were August or 0:24:23.280 --> 0:24:26.359 September of nineteen ninety eight. By the way, thank goodness, 0:24:26.359 --> 0:24:28.560 they liked me at Davidson Kaepnor, and we're willing to 0:24:28.560 --> 0:24:30.080 give me a job because it was a very tough 0:24:30.160 --> 0:24:32.320 job market in the fall ninety four dealing with those 0:24:32.359 --> 0:24:35.680 particular things. The Asia contasion I think was more ninety seven, 0:24:35.800 --> 0:24:38.000 and so I saw parts of it. I mean that 0:24:38.040 --> 0:24:41.120 was also a learning lesson. People made a fortune in Asia, 0:24:41.440 --> 0:24:43.520 we just weren't equipped to do it at Decay. We 0:24:43.560 --> 0:24:45.359 looked at a few things, and what we figured out, 0:24:45.400 --> 0:24:47.879 which was right, was we couldn't invest there unless we 0:24:47.920 --> 0:24:50.080 had boots on the ground and a real knowledge base, 0:24:50.119 --> 0:24:52.520 and so we didn't. And so folks like Allman Sachs 0:24:52.520 --> 0:24:55.439 made a fortune in that era. Those are lessons I 0:24:55.480 --> 0:24:57.840 corrected later on, where we sort of boots on the 0:24:57.840 --> 0:25:01.480 ground in places around the world, advantage of opportunities as 0:25:01.480 --> 0:25:03.440 they emerged. But I learned that from Asia in terms 0:25:03.440 --> 0:25:05.479 of what we weren't doing. But look, I mean I 0:25:05.560 --> 0:25:07.280 was on a trading desk when the world was falling 0:25:07.280 --> 0:25:11.040 apart in August of nineteen ninety eight, And you know, 0:25:11.119 --> 0:25:13.200 I've told this to some of our younger people over time, 0:25:13.400 --> 0:25:15.879 Like the best time to be on a trading desk 0:25:15.960 --> 0:25:18.080 is when you have no responsibility, right, so it's not 0:25:18.119 --> 0:25:20.520 your fault that things are going bad, and you just 0:25:20.800 --> 0:25:23.040 learned from it and you watch the people around you. 0:25:23.119 --> 0:25:25.520 And I remember how cool and calm and collected everyone 0:25:25.680 --> 0:25:28.719 was in the face of you know, dramatic adversity. And 0:25:28.760 --> 0:25:30.480 you know that was super helpful to me when I 0:25:30.480 --> 0:25:32.800 was dealing with O seven or eight or things that 0:25:34.280 --> 0:25:37.400 happened after the fact, and so you know, I quite 0:25:37.480 --> 0:25:39.800 enjoyed having that opportunity. Huh. 0:25:39.920 --> 0:25:43.920 Really really interesting. So let's talk a little bit about 0:25:44.200 --> 0:25:47.440 a piece that you and the firm put out titled 0:25:48.000 --> 0:25:51.880 the Party is Just Getting Started discuss. 0:25:52.000 --> 0:25:54.240 Sure, Well, you know it's interesting. This is something that 0:25:54.320 --> 0:25:58.119 I reflected on last year, and so the general subject 0:25:58.320 --> 0:26:00.520 of the Party is Just Getting Stile, which is a 0:26:00.520 --> 0:26:03.879 white paper that we put out recently, is about the 0:26:03.960 --> 0:26:07.639 role of absolute return in a portfolio. And the reason 0:26:07.720 --> 0:26:10.359 I reflected on this is if you go back to 0:26:10.359 --> 0:26:12.840 the start of my career, so the nineteen nineties and 0:26:12.920 --> 0:26:15.800 the two thousands, you would have relied upon absolute return 0:26:15.840 --> 0:26:18.439 strategies to be a volist in your portfolio and a 0:26:18.480 --> 0:26:21.560 diversifier in your portfolio, but you also would have relied 0:26:21.640 --> 0:26:23.840 upon them to get you home in terms of the 0:26:23.880 --> 0:26:26.399 overall portfolio objectives. Right. So if you look at a 0:26:26.400 --> 0:26:30.720 typical allocator, right, they've got a five percent spend rate 0:26:30.960 --> 0:26:33.160 and they want to earn something plus inflation over that. 0:26:33.280 --> 0:26:36.040 So many allocators are shooting for kind of higher single 0:26:36.080 --> 0:26:38.159 digit rate return seven or nine percent, depending upon the 0:26:38.200 --> 0:26:43.080 institution and the needs. And in the two thousands, when 0:26:43.080 --> 0:26:46.439 I started my career was a first partner at Davidson Keepner, 0:26:46.760 --> 0:26:48.760 that would have been the expectation of absolute return was 0:26:48.800 --> 0:26:50.760 that you were going to earn high single or lower 0:26:50.800 --> 0:26:54.440 double digit rates of return in the strategy NBA diversifier 0:26:54.560 --> 0:26:58.560 and have low volatility. There were other strategies within abbsolute 0:26:58.560 --> 0:27:01.320 return that might have had higher return higher volatility expectations, 0:27:01.320 --> 0:27:04.479 but that would have been the base expectation. So what happened, right, 0:27:04.520 --> 0:27:08.359 You had a period of time with fifteen years roughly 0:27:08.400 --> 0:27:11.560 of zero percent interest rates. The longer that period went on, 0:27:11.880 --> 0:27:15.040 the more and more returns got reduced in the area. 0:27:15.119 --> 0:27:18.440 I would say by twenty twenty, when the pandemic hit 0:27:19.160 --> 0:27:22.679 an allocators expectations for appsort return strategies would have just 0:27:22.880 --> 0:27:25.040 been to be a ballast against their portfolios. And what 0:27:25.080 --> 0:27:27.040 I mean by that is we need a ballast, we 0:27:27.040 --> 0:27:29.600 need a volatility dampner. We're going to use absolte return 0:27:29.960 --> 0:27:32.360 for that. But we expect to earn our quote unquote 0:27:32.400 --> 0:27:34.720 real returns off of our equity strategy. So whether that's 0:27:34.880 --> 0:27:37.720 public equities or private equities, or maybe if you're a 0:27:37.760 --> 0:27:41.520 little bit more adventurous growth equity or venture capital, and 0:27:41.520 --> 0:27:43.240 you pair those two things together and you'd have a 0:27:43.240 --> 0:27:46.520 great portfolio. So you fast forward to twenty twenty four, 0:27:46.920 --> 0:27:49.040 I think things are very different today, and we wanted 0:27:49.080 --> 0:27:52.080 to figure out why. I mean, absolute return strategies collectively 0:27:52.080 --> 0:27:54.320 had their best year at a very long time last year. 0:27:54.400 --> 0:27:56.240 I think they're off to a very good twenty twenty 0:27:56.320 --> 0:27:59.240 five as well. So why is this happening? So is 0:27:59.240 --> 0:28:02.439 it just rates? And so you're unquestionably in a period 0:28:02.520 --> 0:28:04.520 of higher rates today versus what you were in the 0:28:04.560 --> 0:28:07.040 two thousand and tens. But it's not just rates, it's 0:28:07.080 --> 0:28:09.400 actually dispersion. And so what we did is we looked 0:28:09.440 --> 0:28:12.560 over long periods of time and there's a high correlation 0:28:12.840 --> 0:28:16.560 between dispersion and markets and higher rates, and so not 0:28:16.600 --> 0:28:19.000 only do you get the benefit of a interest rate 0:28:19.040 --> 0:28:21.440 premium today compared to what you had four years ago, 0:28:21.840 --> 0:28:24.680 but you actually get about fifty percent it's a touch 0:28:24.720 --> 0:28:28.840 more than that expectation of return above the risk free 0:28:28.920 --> 0:28:31.719 rate today because of where a dispersion is in markets, 0:28:31.720 --> 0:28:36.560 and that dispersion exists in both credit markets and equity markets, 0:28:36.600 --> 0:28:38.680 so it's in both those strategies, and that's why you're 0:28:38.680 --> 0:28:42.120 getting better performance than absolute return. We think the rate 0:28:42.200 --> 0:28:44.440 story is here to stay. But even if it's not 0:28:44.520 --> 0:28:46.280 for a period of time, even if you have the 0:28:46.320 --> 0:28:49.560 short term rate go down, ultimately we think that dispersion 0:28:49.640 --> 0:28:51.040 is going to last for a long time, which is 0:28:51.080 --> 0:28:53.840 kind of what happened in the two thousands as well. 0:28:53.920 --> 0:28:56.760 And so again you have a whole generation of allocators 0:28:56.800 --> 0:28:59.560 who are trained for absolute return to serve one role 0:28:59.600 --> 0:29:02.200 in their portfolios, and we actually think it serves a 0:29:02.280 --> 0:29:04.560 second role in their portfolios as well, which is a 0:29:04.560 --> 0:29:07.880 return driver. And so you take those two things together, 0:29:07.920 --> 0:29:10.680 we think it's a really powerful asset class. And I 0:29:10.720 --> 0:29:12.400 wrote this paper because I just don't think there's been 0:29:12.440 --> 0:29:14.800 a lot of work that's out there on it. You know, 0:29:14.840 --> 0:29:17.640 you see headlines about people are getting more interested in 0:29:17.680 --> 0:29:19.880 apps or return our hedge funds. Again, you see other 0:29:19.920 --> 0:29:21.760 headlines that there's not a lot of capital available for 0:29:21.800 --> 0:29:24.960 the strategy because many allocators are over allocated to private 0:29:24.960 --> 0:29:27.200 equity or growth equity or venture capital and they don't 0:29:27.240 --> 0:29:29.440 have the liquid capacity for it. But I think for 0:29:29.480 --> 0:29:31.320 those who do, who are interested in it, they're getting 0:29:31.320 --> 0:29:33.560 rewarded for it right now. And so that's the root 0:29:33.560 --> 0:29:34.040 of the paper. 0:29:34.320 --> 0:29:37.840 So I'm fascinated by so many aspects of that. One 0:29:37.920 --> 0:29:41.880 is you brought up ballast, and when I think of 0:29:41.960 --> 0:29:46.719 what's typically been the ballast to offset volatility of public equities, 0:29:47.040 --> 0:29:50.680 it historically has been bonds. But once yields went down 0:29:50.720 --> 0:29:55.520 to practically nothing, the question was what's going to take 0:29:55.600 --> 0:29:59.000 up that role. I know a lot of people just said, 0:29:59.000 --> 0:30:02.240 all right, those seventy th the equity will make up 0:30:02.240 --> 0:30:07.560 for the performance, but not for that offsetting diversified ballast. 0:30:08.320 --> 0:30:13.120 Is it distress credit, is it absolute returns? What is 0:30:13.160 --> 0:30:17.320 filling that role going forward? And then we'll talk about 0:30:17.480 --> 0:30:20.840 how the higher rates have changed the calculus somewhat later, 0:30:21.120 --> 0:30:25.000 But what is the new ballast today that used to 0:30:25.000 --> 0:30:25.600 be bonds. 0:30:25.920 --> 0:30:28.040 Well, I mean again, i'd start out with like, I 0:30:28.080 --> 0:30:32.440 think absolute return can play that role. So opportunistic credit 0:30:32.520 --> 0:30:36.520 can be part of a absolute return strategy, whether it's 0:30:36.520 --> 0:30:39.920 accessed in public format or private format. Some people put 0:30:39.960 --> 0:30:43.040 opartistic credit in larger what they would call private credit 0:30:43.240 --> 0:30:46.640 buckets as well. But I do actually think that absolute 0:30:46.680 --> 0:30:50.360 return will eliminate the rate risk portion of things. You know, 0:30:50.680 --> 0:30:53.320 I mean, bonds are a ballist except if they're not. Right, 0:30:53.400 --> 0:30:58.040 So you go back to two twenty two in twenty 0:30:58.120 --> 0:31:02.240 twenty two was certainly the worst year for fixed income 0:31:02.400 --> 0:31:04.680 in one hundred years. It may have arguably been the 0:31:04.680 --> 0:31:06.240 worst year for fixed income in the history of the 0:31:06.280 --> 0:31:08.200 United States. If you go back over very long periods 0:31:08.240 --> 0:31:12.400 of time and performance of bonds, you're basically down mid 0:31:12.480 --> 0:31:14.840 teens depending upon what you own, whether it was treasuries 0:31:14.920 --> 0:31:17.760 or investment great or high yield of things along those lines. 0:31:17.880 --> 0:31:19.720 Twenty twenty was not a great year for the equity 0:31:19.760 --> 0:31:22.200 markets either, right, So that was a year where people 0:31:22.200 --> 0:31:25.640 started to seriously question the sixty forty or seventy thirty 0:31:26.760 --> 0:31:29.320 model with where things were. If you were an absolute 0:31:29.320 --> 0:31:31.800 return type strategies, you did much better that year, if 0:31:31.800 --> 0:31:33.280 you were not opt just a credit strategies, you did 0:31:33.360 --> 0:31:37.000 much better that you protected capital I think at a 0:31:37.000 --> 0:31:40.040 minimum in those strategies, and that gave you more of 0:31:40.080 --> 0:31:43.360 a chance to take advantage of upside in twenty twenty three, 0:31:43.360 --> 0:31:47.200 in two thousand and twenty four. I mean opportunistic credit 0:31:47.600 --> 0:31:51.640 has the additional advantage that it tends to be pretty 0:31:51.720 --> 0:31:54.840 inversely correlated in terms of when it does well to 0:31:55.040 --> 0:31:57.880 strategies like growth equity and venture capital. So again, those 0:31:57.880 --> 0:31:59.880 are like perfectly good strategies. I'm not like put polling 0:31:59.920 --> 0:32:02.520 the I'm just saying they're very cyclical in terms of 0:32:03.200 --> 0:32:05.920 making investments in those strategies, and so they actually pair 0:32:06.120 --> 0:32:09.360 very well with opportunistic credit in portfolio is because typically 0:32:09.360 --> 0:32:11.680 oportistic credit is doing well when those strategies are not 0:32:11.720 --> 0:32:13.360 doing well, and sometimes vice first. 0:32:13.320 --> 0:32:16.080 Right, And to put a little meat on that worst 0:32:16.200 --> 0:32:20.240 year in fixed income in twenty twenty two, the last 0:32:20.280 --> 0:32:23.120 time you had both stocks and bonds down double digits, 0:32:23.160 --> 0:32:25.600 I want to say was nineteen eighty one, about forty 0:32:25.680 --> 0:32:28.920 forty one years earlier. So these things don't come along 0:32:29.400 --> 0:32:32.520 very often, but when they do, I would imagine event 0:32:32.640 --> 0:32:35.800 driven opportunistic credit is a perfect offset. 0:32:35.960 --> 0:32:39.840 We completely agree with that. And also, you know, I 0:32:39.880 --> 0:32:42.840 think that it's tough to just do a simple sixty 0:32:42.920 --> 0:32:46.200 forty or seventy thirty portfolio. I mean maybe for very 0:32:46.240 --> 0:32:49.800 smaller institutions that make sense, but once you have some 0:32:49.920 --> 0:32:52.240 degree of sophistication that you can bring into your portfolio, 0:32:52.280 --> 0:32:54.400 it makes sense to have some alternatives of different sorts 0:32:54.440 --> 0:32:56.400 to balance out that risk. 0:32:57.200 --> 0:33:00.840 So you mentioned higher rates as an ongoing issue. It 0:33:00.880 --> 0:33:04.640 certainly looks like higher for longer is the Fed's posture, 0:33:05.320 --> 0:33:09.640 which raises the question our higher rates a tailwind for 0:33:09.760 --> 0:33:14.680 absolute return strategies, especially opportunistic credit or are they a headwind? 0:33:15.360 --> 0:33:16.960 Well, I always say a couple of things. So first 0:33:16.960 --> 0:33:19.959 of all, we're in an environment of higher rates, it 0:33:19.960 --> 0:33:22.400 doesn't mean that we're in an environment of high rates, right. 0:33:22.440 --> 0:33:24.920 And so if you look at the hundred the nice 0:33:24.920 --> 0:33:26.920 thing about interest rates is you have hundreds of years 0:33:26.960 --> 0:33:28.880 of history you can actually look at in these things. 0:33:29.120 --> 0:33:30.600 And so if you look at the one hundred year 0:33:30.680 --> 0:33:33.040 history of interest rates in the United States, I believe 0:33:33.040 --> 0:33:35.560 the ten years between four and five percent, right, So 0:33:35.600 --> 0:33:37.800 that's about where it is today. So you don't have 0:33:37.960 --> 0:33:40.480 a high ten year today. You only have a high 0:33:40.480 --> 0:33:42.480 ten year today compared to what people got used to 0:33:42.840 --> 0:33:45.920 from the late two thousands until two thousand and twenty 0:33:45.960 --> 0:33:49.240 one in terms of rates of return. So, first of all, 0:33:49.280 --> 0:33:53.320 I do think that higher rates is a tailwind for 0:33:53.480 --> 0:33:57.120 absolute return strategies in general. So that would include opportunistic 0:33:57.160 --> 0:33:59.640 credit strategies, that would include a vent driven strategies, which 0:33:59.680 --> 0:34:02.080 we do. It also include relative value strategy, so we've 0:34:02.120 --> 0:34:04.160 got some of that in our portfolio, but it's not 0:34:04.200 --> 0:34:07.560 the dominant strategy that we have because of the dispersion 0:34:07.640 --> 0:34:09.680 you have in markets in that period of time. I 0:34:09.800 --> 0:34:13.759 also think it's a really good tailwind for opportunistic credit specifically, 0:34:14.120 --> 0:34:16.200 but I give a little bit more of a nuanced 0:34:16.239 --> 0:34:19.600 answer to that, and an opportunistic credit I think you 0:34:19.640 --> 0:34:22.080 need to go back to how we got here, right. 0:34:22.160 --> 0:34:25.880 So it's not the absolute rate of return in fixed 0:34:25.920 --> 0:34:29.759 income today that's interesting. It's the sixteen months that it 0:34:29.800 --> 0:34:34.120 took from early twenty twenty two for the base rate 0:34:34.200 --> 0:34:36.840 to go from zero went to the five and obviously 0:34:36.880 --> 0:34:39.080 it's come off of that a little bit since then. 0:34:39.320 --> 0:34:42.280 So most capital structures that are in the market place 0:34:42.320 --> 0:34:48.160 today were set entirely or in some cases partially but meaningfully. 0:34:48.480 --> 0:34:51.239 Prior to twenty twenty two, when the base rate was zero, 0:34:51.600 --> 0:34:53.759 and when you're close to fifteen years into a base 0:34:53.840 --> 0:34:57.080 rate of zero, companies were assuming, or people who owned 0:34:57.080 --> 0:34:59.600 assets were levering them, were assuming, and probably rightfully so, 0:35:00.040 --> 0:35:03.160 that the base rate would stay zero forever. And in fact, 0:35:03.360 --> 0:35:06.000 you know, it's one of those things where it's so 0:35:06.160 --> 0:35:08.880 easy to foresee with the inflation we had in twenty 0:35:08.960 --> 0:35:12.120 twenty in twenty twenty one, that the base rate was 0:35:12.120 --> 0:35:13.839 going to rise, but it still came as a shock 0:35:13.880 --> 0:35:16.480 to the markets where it actually rose. And so you're 0:35:16.520 --> 0:35:19.040 now in the middle of this I think several year 0:35:19.560 --> 0:35:23.120 period of time where owners of assets are like, hey, 0:35:23.200 --> 0:35:25.880 I got to actually raise money in my capital structure 0:35:25.920 --> 0:35:27.800 to de lever I mean, some assets are going to 0:35:27.840 --> 0:35:30.759 be you know, need to be just fully restructured because 0:35:30.800 --> 0:35:32.840 they aren't worth what the debt is worth anymore. But 0:35:32.880 --> 0:35:35.200 there are many other asset owners who have assets who 0:35:35.239 --> 0:35:37.440 have equity value, maybe not as much equity value as 0:35:37.440 --> 0:35:40.360 they had previously, and they look at their capital structures 0:35:40.760 --> 0:35:43.440 and you probably need to raise twenty to forty dollars 0:35:43.480 --> 0:35:45.880 of equity for every one hundred dollars a debt that 0:35:45.920 --> 0:35:48.959 you had before to delever your capital structure. And that's 0:35:49.000 --> 0:35:51.400 super interesting because there's a lot of different ways companies 0:35:51.440 --> 0:35:54.360 can do that. They can do liability management exercises to 0:35:54.400 --> 0:35:57.240 try to whittle down the debt. They can sell assets 0:35:57.320 --> 0:36:00.360 off to you know, get their house in order, in 0:36:00.680 --> 0:36:03.839 direct corporate lending land, private credit land. They can just pick. 0:36:03.920 --> 0:36:05.520 They could say, hey, we're not gonna pay you interest 0:36:05.520 --> 0:36:06.959 for a year or two, so just tack it onto 0:36:06.960 --> 0:36:08.840 the principle and let's sort of try to fix the 0:36:08.880 --> 0:36:10.960 ship that way. There's a lot of different ways this 0:36:11.000 --> 0:36:13.920 can get solved for and that's like the theme an 0:36:13.920 --> 0:36:16.080 opportunistic credit that we've been living in the last couple 0:36:16.120 --> 0:36:17.520 of years, and it's a theme I think we're gonna 0:36:17.520 --> 0:36:19.360 be living the next couple of years. And so I 0:36:19.400 --> 0:36:22.439 think it's super interesting because unless you believe that rates 0:36:22.480 --> 0:36:25.640 are gonna rise materially, like, there's no bailing out of 0:36:25.680 --> 0:36:28.399 this situation of these companies. It's just math in terms 0:36:28.440 --> 0:36:30.720 of where these are. And if you're an asset owner, 0:36:31.120 --> 0:36:34.080 you're gonna play out your lower interest rate coupon to 0:36:34.080 --> 0:36:35.799 the very end. It's an asset. It's an asset that 0:36:35.800 --> 0:36:37.840 burns off, and so you're either going to try to 0:36:37.840 --> 0:36:40.560 be opportunistic and use that to get something from your creditors, 0:36:41.080 --> 0:36:42.840 or you're gonna say, hey, we're just gonna pay a 0:36:42.840 --> 0:36:44.200 little rates for a while and we'll see what things 0:36:44.239 --> 0:36:45.919 happen closer to maturity. Huh. 0:36:46.120 --> 0:36:49.680 Really really interesting. Who knew the mantra move fast and 0:36:49.719 --> 0:36:51.919 break things would be adopted by the Fed? 0:36:52.200 --> 0:36:52.439 Yeah? 0:36:52.560 --> 0:36:55.719 Right, that's more more Silicon Valley. So I'm fascinated by 0:36:56.239 --> 0:37:02.800 the concept of opportunistic credit. You've been with Davidson Kapner 0:37:02.840 --> 0:37:06.399 for twenty seven years, twenty six years something like that. 0:37:07.000 --> 0:37:09.759 How has the DNA of the firm when it comes 0:37:09.760 --> 0:37:14.120 to event driven investing evolved over that time. It can't 0:37:14.120 --> 0:37:16.520 be the same today as it was in the nineteen nineties. 0:37:16.640 --> 0:37:19.000 No, I mean so, first of all, you know, I'm 0:37:19.000 --> 0:37:21.399 a believer in some of the truism of markets, which 0:37:21.440 --> 0:37:25.640 is that capital chases returns and returns become effishent overtime. Like, 0:37:25.640 --> 0:37:27.279 there's no getting away from that. If you have an 0:37:27.280 --> 0:37:29.560 asset class and people are doing well and it, other 0:37:29.560 --> 0:37:31.560 people will show up in your asset class, and eventually 0:37:32.160 --> 0:37:35.000 change the dynamic, right, that is what it is. We 0:37:35.040 --> 0:37:38.520 had a couple of strategic inflection points, and I think 0:37:38.520 --> 0:37:41.520 we're very helpful in our business. So the first of 0:37:41.560 --> 0:37:45.080 which was opening our international offices. So you know, I 0:37:45.120 --> 0:37:47.799 mentioned earlier the fact that we kind of missed the 0:37:48.200 --> 0:37:50.719 opportunity set in Asia in the late nineteen nineties because 0:37:50.719 --> 0:37:52.759 we just weren't staff to do it. I'm a big 0:37:52.840 --> 0:37:55.040 believer here, if you're going to invest in markets outside 0:37:55.080 --> 0:37:58.319 the US, you want local people with local relationships and 0:37:58.360 --> 0:38:00.920 local language skills doing that, right. You don't want it 0:38:00.920 --> 0:38:02.439 to be a bunch of smart people in the room 0:38:02.719 --> 0:38:05.480 doing it from New York or London. We opened our 0:38:05.480 --> 0:38:06.920 London office, I don't know, at the end of two 0:38:06.920 --> 0:38:09.480 thousand and two thousand and one, something along those lines, 0:38:09.520 --> 0:38:11.800 and we really invested it in that in that office. 0:38:11.800 --> 0:38:14.279 I mean, the story I like to tell is we 0:38:14.320 --> 0:38:17.279 had a pretty good sized office in London. I make 0:38:17.320 --> 0:38:18.879 a point of going, you know, four or five times 0:38:18.880 --> 0:38:22.000 a year. I showed up in early January two thousand 0:38:22.040 --> 0:38:24.200 and nine, which I remember because I remember seeing all 0:38:24.239 --> 0:38:27.080 the Herod's holiday ornaments for sale in the gift shop 0:38:27.080 --> 0:38:29.680 at the Heathrow Airport on my way home and I 0:38:29.760 --> 0:38:33.799 go to see the old Merrils. Right, So Merrill Lynch 0:38:33.840 --> 0:38:35.680 had been merged into Bank of America at this point, 0:38:35.680 --> 0:38:37.600 but they were still there and they said, we just 0:38:37.640 --> 0:38:39.440 want you to know you're the first American who's come 0:38:39.480 --> 0:38:41.759 to our office in four months. Wow. And I said, 0:38:41.840 --> 0:38:44.000 oh my god, how is that possible? And they said, well, 0:38:44.040 --> 0:38:45.320 you know a lot going on in the US. This 0:38:45.480 --> 0:38:48.759 was right past fall two thousand and eight, right, And 0:38:48.840 --> 0:38:50.719 I said, you know what, there's an opportunity here. So 0:38:50.760 --> 0:38:53.000 we did a massive hiring spree in London over the 0:38:53.080 --> 0:38:55.120 next three or four years. And I said, okay, London, 0:38:55.440 --> 0:38:57.160 because you know, all the stuff in the US had 0:38:57.200 --> 0:38:59.520 cracked and in London it hadn't cracked in the same 0:39:00.520 --> 0:39:03.120 in the same way. And so the European opportunities came 0:39:03.160 --> 0:39:06.840 a few years later, but they came in big droves. 0:39:07.000 --> 0:39:09.520 And you know, we followed the same playbook in Asia 0:39:09.600 --> 0:39:11.279 as well. We opened an office in Hong Kong in 0:39:11.320 --> 0:39:14.920 twenty ten. We now have smaller offices in Mumbai and 0:39:14.920 --> 0:39:19.080 Shinzen as well to access the China and India markets. 0:39:19.160 --> 0:39:23.480 And you know, that was a fantastic decision. Those markets 0:39:23.520 --> 0:39:26.719 are less efficient than the US is some of that structural. 0:39:26.800 --> 0:39:29.320 Some of that there's just fewer people trying to access 0:39:29.360 --> 0:39:32.759 those opportunities. You need to have local people, you need relationships. 0:39:32.760 --> 0:39:36.480 It's much more relationship driven. That was like one change 0:39:36.520 --> 0:39:38.799 that we made and I think set us up for, 0:39:39.200 --> 0:39:42.080 you know, continuing to grow and survive and thrive as 0:39:42.120 --> 0:39:45.160 a firm. The second one i'd reference is our entry 0:39:45.280 --> 0:39:48.319 more seriously into private markets. And so you know, if 0:39:48.320 --> 0:39:52.080 you go back prior to twenty ten, all the capital 0:39:52.080 --> 0:39:55.480 we had was sort of hedge fund structure capital where 0:39:55.800 --> 0:39:59.600 it was reasonably liquid, maybe had the small ability to 0:39:59.680 --> 0:40:03.520 do a side pocket. We generally didn't do that, and 0:40:03.600 --> 0:40:05.839 she had to mostly stick to liquid securities in what 0:40:05.880 --> 0:40:07.759 you were doing. We thought there was going to be 0:40:07.760 --> 0:40:12.760 a really good opportunity in buying less liquid, longer duration opportunities. 0:40:13.000 --> 0:40:15.760 We might own assets for four to six years, let's say, 0:40:16.080 --> 0:40:18.960 versus things that were marked to market on a daily basis, 0:40:19.000 --> 0:40:20.160 and we thought there were things that you could do 0:40:20.239 --> 0:40:22.840 to those assets to improve them over time. This was 0:40:22.880 --> 0:40:25.080 sort of the first wave of bank selling that probably 0:40:25.120 --> 0:40:27.480 came to the US in the two thousand and eight 0:40:27.520 --> 0:40:29.840 to twenty eleven timeline. And probably came to Europe in 0:40:29.880 --> 0:40:33.279 the two thousand twelve to twenty fifteen timeline. So we 0:40:33.360 --> 0:40:35.560 had our first you know, sort of private equity style 0:40:36.560 --> 0:40:40.240 strategy due to Operatness to credit, which launched in twenty eleven. 0:40:40.840 --> 0:40:43.480 And even though the opportunity to buy from the banks 0:40:44.080 --> 0:40:47.880 ultimately dissipated, what we discovered was as private markets grew, 0:40:48.160 --> 0:40:50.880 this just became a bigger and bigger opportunity. And so 0:40:51.000 --> 0:40:53.680 this has really been a substantial portion of the growth 0:40:53.680 --> 0:40:55.560 of our business in the last fifteen years, as being 0:40:55.600 --> 0:40:59.280 in private markets and being an opportunistic credit in private 0:40:59.320 --> 0:41:01.640 markets a lot us ultimately to be an asset back 0:41:01.719 --> 0:41:04.399 lending led us to be in real estate as well, 0:41:04.400 --> 0:41:07.080 which is a big strategy for us with operatistic credit, 0:41:07.120 --> 0:41:08.600 and I think it is really important to have both 0:41:08.640 --> 0:41:11.560 tools in your toolkit. You know, there's this term for 0:41:11.640 --> 0:41:15.280 technology investors which is crossover tech investors, which is basically 0:41:15.520 --> 0:41:17.840 investing firms like co To or Tiger Global that have 0:41:17.920 --> 0:41:21.160 both big public market and private market businesses. I wanted 0:41:21.239 --> 0:41:24.319 to be a crossover credit firm, and by that I 0:41:24.320 --> 0:41:27.120 didn't mean between high yield and IJ What I meant 0:41:27.320 --> 0:41:29.879 was between public markets and private markets, because I think 0:41:29.880 --> 0:41:32.880 you learn a lot being in private markets that's helpful 0:41:32.880 --> 0:41:34.839 for public markets, and I think you'll learn a lot 0:41:34.880 --> 0:41:37.080 as a public markets an investor that's helpful for private 0:41:37.120 --> 0:41:40.080 markets as well. So it's very complementary. And especially if 0:41:40.120 --> 0:41:42.720 you can have both pools of capital in one place 0:41:42.760 --> 0:41:44.680 and you can kind of toggle how you spend your 0:41:44.719 --> 0:41:49.400 resources to between public and private markets. It's just super helpful. 0:41:49.440 --> 0:41:52.359 And so those are maybe two of the bigger things 0:41:52.400 --> 0:41:54.239 that we've done as a firm in the last twenty 0:41:54.320 --> 0:41:57.080 five years to really, you know, help us to thrive 0:41:57.400 --> 0:41:59.879 where the world is in twenty twenty five versus where 0:42:00.120 --> 0:42:02.439 in twenty fifteen or two thousand and five. Huh. 0:42:02.880 --> 0:42:06.480 Really really interesting. Leads to a question. You're the perfect 0:42:06.600 --> 0:42:10.319 person to ask this because whenever we talk about what's 0:42:10.360 --> 0:42:14.239 going on in Europe and the UK, especially Brexit, you 0:42:14.360 --> 0:42:19.160 sort of get an academic answer from a distance. You 0:42:19.280 --> 0:42:21.880 have a major presence in London, you've been there for 0:42:21.960 --> 0:42:25.440 the past you know, decade and a half. Tell us 0:42:25.480 --> 0:42:28.120 a little bit about the opportunities you see on the 0:42:28.200 --> 0:42:32.200 continent and in the UK and how much has the 0:42:32.680 --> 0:42:36.799 Brexit affected the dynamic not just London in the UK, 0:42:37.000 --> 0:42:39.320 but in Europe overall. 0:42:39.920 --> 0:42:41.839 Yeah, I think there's a lot of different things going 0:42:41.880 --> 0:42:45.000 on in Europe. So, first of all, you know, Europe 0:42:45.040 --> 0:42:50.160 tends to be a lower growth economy structurally than the US. 0:42:50.200 --> 0:42:51.960 I think there's a couple of reasons for that. One 0:42:52.000 --> 0:42:54.520 is regulatory, but the second one really is the country 0:42:54.560 --> 0:42:57.200 by country nature and how things operate. I mean, overall, 0:42:57.239 --> 0:42:59.080 it's a giant market, but when you break it down 0:42:59.120 --> 0:43:02.560 and you've got Italian cupmpanies and French companies in German companies, 0:43:02.600 --> 0:43:05.680 that's just much of a less efficient approach. Obviously are 0:43:05.719 --> 0:43:08.760 some multinational companies in Europe, but it's maybe a smaller 0:43:08.800 --> 0:43:12.640 part of how things work over there. And so while 0:43:12.640 --> 0:43:15.880 I'm not sure i'd want to be a tech investor 0:43:15.960 --> 0:43:18.560 in Europe, I'm super happy to be an opportunistic credit 0:43:18.680 --> 0:43:21.040 or an advent driven investor there because these are really 0:43:21.120 --> 0:43:24.840 very deep value markets in terms of where you're investing, 0:43:25.480 --> 0:43:29.680 in terms of the specific impacts of bregsit. I mean, so, 0:43:29.719 --> 0:43:31.439 first of all, it's not been great for the UK 0:43:32.080 --> 0:43:35.000 in terms of where things are. I keep thinking they're 0:43:35.000 --> 0:43:36.480 going to turn it around at some point, but it's 0:43:36.480 --> 0:43:39.000 been a tough seven or eight years there in terms 0:43:39.040 --> 0:43:42.240 of the economy and the need really for the human 0:43:42.280 --> 0:43:44.440 capital that they've lost and maybe have a harder time 0:43:44.480 --> 0:43:48.000 attracting as a result of where bregsit is in the 0:43:48.600 --> 0:43:53.000 continental market. It's really a country by country scenario, and 0:43:53.080 --> 0:43:58.360 so I look at markets like Greece or Portugal or Italy, 0:43:58.760 --> 0:44:02.040 and they've actually proven to be really strong markets for US. 0:44:02.320 --> 0:44:05.520 And those are markets that folks, particularly a pond away, 0:44:06.040 --> 0:44:09.359 often shy away from because it's complex to be there. 0:44:09.440 --> 0:44:11.319 They don't know how business is done. They have certain 0:44:11.320 --> 0:44:14.840 assumptions about the markets that maybe aren't always true, and 0:44:14.880 --> 0:44:17.200 then people have assumptions about the northern European markets that 0:44:17.239 --> 0:44:20.480 also aren't trilling. Germany's in a very hard spot right now, 0:44:20.480 --> 0:44:22.440 there's no getting around that. Again. I've got confidence it 0:44:22.440 --> 0:44:24.719 will turn around over time, but I do expect there'll 0:44:24.719 --> 0:44:28.839 be a lot of opportunities there between now and now 0:44:28.840 --> 0:44:32.799 and then. And there's definitely a big macro lens over 0:44:32.880 --> 0:44:35.440 Europe as well in terms of what can happen in 0:44:35.480 --> 0:44:37.480 Europe over the next five years, which is not just 0:44:37.560 --> 0:44:40.360 related to Brexit, but maybe related to some of the 0:44:40.440 --> 0:44:43.279 geopolitical forces that are in play in two thousand and 0:44:43.840 --> 0:44:47.440 twenty five as well. We like complexity, like we seek 0:44:47.480 --> 0:44:51.120 out complexity, like when there's very few buyers of assets 0:44:51.719 --> 0:44:54.480 or people willing to lend, because you know, you have 0:44:54.520 --> 0:44:56.759 to sort through a lot of stuff, like even just 0:44:56.800 --> 0:45:00.440 the complexity of understanding how different restructuring law as are 0:45:00.440 --> 0:45:03.640 in Spain versus Portugal, right, Like, that's super helpful for 0:45:03.719 --> 0:45:05.600 US in our strategies. The fewer people who can be 0:45:05.600 --> 0:45:09.319 involved in assets, the better it is for US. And 0:45:09.400 --> 0:45:13.600 Europe creates those opportunities, and so it continues to be 0:45:13.640 --> 0:45:15.360 a fruitfall area for US. But if folks in the 0:45:15.440 --> 0:45:17.120 United States don't want to look at it, that's okay. 0:45:18.440 --> 0:45:22.640 I totally get that. It's funny because on the equity side, 0:45:23.280 --> 0:45:25.359 I don't know if the past five years, maybe even 0:45:25.400 --> 0:45:29.360 longer ten years, people have been saying US is pricedy, 0:45:29.520 --> 0:45:32.319 Europe is cheap. Now's the time to move money from 0:45:32.360 --> 0:45:36.560 the US at public equity to Europe, and that trade 0:45:36.640 --> 0:45:41.520 hasn't worked. You Arguably, European stocks are cheap for a 0:45:41.560 --> 0:45:44.799 reason and US stocks are expensive for a reason. What 0:45:44.800 --> 0:45:46.520 do you see on the credit side, what do you 0:45:46.560 --> 0:45:49.760 see on the private side? Do you run into similar 0:45:49.920 --> 0:45:54.040 valuation issues or the math is the math, and when 0:45:54.080 --> 0:45:55.759 the opportunities arise, it doesn't matter. 0:45:55.880 --> 0:45:59.240 Yeah. I mean, look, I don't necessarily expect evaluation premium 0:45:59.239 --> 0:46:01.440 for europe get it right. So I think we can 0:46:01.480 --> 0:46:04.080 earn more money on our comparable European opportunities than we 0:46:04.160 --> 0:46:06.200 can on US opportunities. And maybe some of that's getting 0:46:06.239 --> 0:46:08.800 paid for the complexity and the things that we're speaking 0:46:08.840 --> 0:46:11.719 about in terms of how we do that. I do 0:46:11.840 --> 0:46:13.799 wonder in the in the equity side, if you take 0:46:13.840 --> 0:46:17.120 out tech, if there's really such a valuation gap. I mean, 0:46:17.160 --> 0:46:18.879 it's something like half the market cap in the US 0:46:18.960 --> 0:46:20.440 and tech at this point when you look at the 0:46:20.520 --> 0:46:23.000 S and P. That's not to say I'm in Europe right, 0:46:23.000 --> 0:46:25.160 there's very little tech industry. So I do think the 0:46:25.200 --> 0:46:27.720 tech separation is a big part of the US versus 0:46:27.719 --> 0:46:30.719 European separation. For better or for worse, you don't do 0:46:30.760 --> 0:46:33.400 a lot of technology related investing in opportunities to credit, 0:46:33.400 --> 0:46:36.280 you get some chances. Sometimes tech companies are not often 0:46:36.320 --> 0:46:39.040 great for opetusity to credit. Perhaps software will be different. 0:46:39.040 --> 0:46:41.279 If there's often if there's ultimately a crack in the 0:46:41.280 --> 0:46:46.960 software world, excuse me, but I would say that, you know, 0:46:46.960 --> 0:46:48.720 in the sectors that we invest in, which is basically 0:46:48.760 --> 0:46:53.160 everything else, you know, we are getting paid a premium 0:46:53.160 --> 0:46:55.359 to invest in Europe for the reasons that we that 0:46:55.400 --> 0:46:56.120 we said. 0:46:56.600 --> 0:47:02.359 So you've recently transitioned to become executive managing member. That 0:47:02.400 --> 0:47:06.160 goes back to the pandemic after was it Davidson or 0:47:06.160 --> 0:47:07.800 it was Kampnor who retired. 0:47:07.960 --> 0:47:10.759 Yeah, I became our executive managing member with Tom in 0:47:10.800 --> 0:47:14.000 twenty eighteen, and then Tom formally retired on January one, 0:47:14.000 --> 0:47:16.480 twenty twenty, so I became the sole head of the 0:47:16.520 --> 0:47:17.440 firm at that point. 0:47:17.600 --> 0:47:21.400 What was that transition like? Because your chief investment officer, 0:47:21.800 --> 0:47:25.120 I got to imagine thirty five plus billion dollars and 0:47:25.200 --> 0:47:26.279 how many employees do you guys? 0:47:26.320 --> 0:47:27.240 About five hundred? 0:47:27.520 --> 0:47:30.880 I mean, that's no small task to run. How do 0:47:30.960 --> 0:47:33.719 you balance the two? What was that transition like? 0:47:34.080 --> 0:47:36.080 Well, you know, I'm very fortunate in the sense that 0:47:36.120 --> 0:47:39.200 the transition with Tom and I took place over many years, 0:47:39.280 --> 0:47:43.400 and so I'm actually the third managing partner of Davidson kemptainer. 0:47:43.440 --> 0:47:46.960 Marvin Davidson was the first, and Marvin Davidson Randy Kay 0:47:47.120 --> 0:47:49.440 for about twenty years before Tom took over, and then 0:47:49.440 --> 0:47:52.359 Tom Randy k for about fifteen years. I was there 0:47:52.400 --> 0:47:55.479 for the last five years of Marvin's running the firm, 0:47:55.520 --> 0:47:57.279 and so I got to actually see two models. I 0:47:57.280 --> 0:47:59.520 got to see Marvin's model and Tom's model, which were 0:47:59.640 --> 0:48:02.319 very different from each other. And then I was the 0:48:02.320 --> 0:48:05.640 deputy managing partner for several years before becoming the cohed 0:48:05.680 --> 0:48:08.319 with Tom for two years. You know, Tom was very 0:48:08.360 --> 0:48:11.960 focused on succession and leaving the place in better shape 0:48:12.000 --> 0:48:14.879 than he got there with, so to speak, and that's 0:48:14.920 --> 0:48:17.480 super helpful. I got a lot of calls because we're 0:48:17.480 --> 0:48:19.960 now third generation and running the business about how you 0:48:20.000 --> 0:48:23.200 do this. And my first thing I say to people, 0:48:23.239 --> 0:48:24.840 which is sort of a joke, but it really isn't, 0:48:25.280 --> 0:48:26.879 is the person in front of you have to want 0:48:26.920 --> 0:48:29.480 to retire. Like that's step one. You know, transitions don't 0:48:29.480 --> 0:48:31.640 go well if the person who's leaving doesn't actually want 0:48:31.640 --> 0:48:33.640 to retire. I was very fortunate Tom actually wanted to do. 0:48:34.080 --> 0:48:35.400 That's what the chairman emeritith. 0:48:36.320 --> 0:48:39.759 Tom actually wanted to retire and do other things. I mean, 0:48:39.800 --> 0:48:42.239 there's things you learn along the way. I mean again, 0:48:42.239 --> 0:48:45.200 I wouldn't have wished a pandemic upon anybody. But it 0:48:45.239 --> 0:48:47.520 was sort of sink or swim, right, because you know, 0:48:47.800 --> 0:48:50.720 it was two months in the markets were falling apart. 0:48:50.960 --> 0:48:52.359 No one wanted to be in the office in early 0:48:52.480 --> 0:48:55.319 March of twenty twenty, right, for reasons that obviously became 0:48:55.360 --> 0:48:58.560 pretty clear soon afterwards. And how do you make that 0:48:58.640 --> 0:49:00.920 all work? How do you get every on the same page, 0:49:00.960 --> 0:49:03.239 how do you broadcast your message out? How do you 0:49:03.239 --> 0:49:04.480 make sure that the things that are happening in the 0:49:04.480 --> 0:49:07.120 portfolio are happening in a way that you want them 0:49:07.120 --> 0:49:09.120 to happen. How do you empower people when everyone's sitting 0:49:09.120 --> 0:49:11.520 in their home or whatever. So we rode through the 0:49:11.520 --> 0:49:13.919 pandemic and we learned a lot. But I did have, 0:49:14.200 --> 0:49:17.759 you know, twenty plus years of training to do this. 0:49:17.920 --> 0:49:19.960 And because I've only been at one firm in my 0:49:20.160 --> 0:49:22.480 entire career, like, i didn't have the benefit of being 0:49:22.520 --> 0:49:24.560 CEO somewhere else, but I'd the benefit of really knowing 0:49:24.600 --> 0:49:27.560 David's and Kepner cold and that probably proved to be 0:49:27.560 --> 0:49:28.480 the biggest advantage. 0:49:28.560 --> 0:49:32.400 How do you maintain a corporate culture when everybody's working 0:49:32.400 --> 0:49:36.320 from home and you have people in how many different 0:49:36.320 --> 0:49:37.320 cities around the world. 0:49:37.520 --> 0:49:41.239 So we have seven offices, although you know, two of 0:49:41.280 --> 0:49:44.240 those offices are quite small sub ten people, and another 0:49:44.280 --> 0:49:48.239 two of those offices are you know three, I'll still. 0:49:48.040 --> 0:49:50.000 Far flong different times, zoon. 0:49:50.200 --> 0:49:53.440 Far it's far flong. So first of all, like when 0:49:53.480 --> 0:49:55.759 you go from fifteen people to five hundred people, you 0:49:55.840 --> 0:49:58.399 have to understand there's parts of your culture that you're 0:49:58.400 --> 0:50:00.319 going to maintain and there's parts of your culture you're 0:50:00.320 --> 0:50:02.319 not going to maintain. So, for example, when I got 0:50:02.360 --> 0:50:05.440 to Davidson Kaptner, every time it was someone's birthday, you 0:50:05.480 --> 0:50:07.480 get a birthday card signed by the whole office, and 0:50:07.520 --> 0:50:10.839 you get a cake, right, And so we have kept 0:50:10.880 --> 0:50:12.919 the cakes, but we got rid of the birthday cards 0:50:12.960 --> 0:50:17.040 at some point, right. We you know, have brought in 0:50:17.120 --> 0:50:20.719 different things over the years to speak to what our 0:50:20.760 --> 0:50:24.440 workforce is today, not what our workforce was ten or 0:50:24.440 --> 0:50:26.399 twenty years ago. So the example I give is when 0:50:26.400 --> 0:50:29.279 I got to Davidson Kapner in the nineteen nineties, I 0:50:29.280 --> 0:50:32.400 feel like our workforce mostly cared that we had clients, right, 0:50:32.440 --> 0:50:34.279 and by two thousand and eight, two thousand and nine, 0:50:34.560 --> 0:50:35.920 they didn't want too many of the clients to be 0:50:35.920 --> 0:50:37.680 fund of funds just because fund of funds weren't doing 0:50:37.760 --> 0:50:39.040 very well at that period of time. That was a 0:50:39.080 --> 0:50:42.200 transition where more and more investors in apps return strategies 0:50:42.200 --> 0:50:44.480 were investing direct and obviously there are still a few 0:50:44.840 --> 0:50:47.120 allocators that are out there of scale in that world. 0:50:47.400 --> 0:50:49.799 And then by the mid twenty tens, people wanted to 0:50:49.800 --> 0:50:52.200 know not only that we had clients, but what public 0:50:52.239 --> 0:50:54.880 good are we doing right, So we instituted a program 0:50:54.920 --> 0:50:57.400 called DK pledge Right, and it was a way that 0:50:57.400 --> 0:50:59.439 people could learn a little bit about what our clients did, 0:50:59.719 --> 0:51:01.719 you know, so whether returns went to you know, a 0:51:01.760 --> 0:51:04.160 lot of our clients are endawments or foundations or pension 0:51:04.160 --> 0:51:06.279 funds or people who are doing real good and even 0:51:06.280 --> 0:51:08.560 our high networth clients, many of them have big philanthropic 0:51:08.719 --> 0:51:10.400 arms that are doing very good things with the returns 0:51:10.400 --> 0:51:12.360 that we generate for them as well. But it was 0:51:12.360 --> 0:51:15.920 also a chance for our employees to give back to charities, 0:51:16.000 --> 0:51:19.000 bring charities into the organization. So we've given away like 0:51:19.040 --> 0:51:22.320 six million dollars and I think had a thousand different organizations. 0:51:22.320 --> 0:51:25.839 We've impacted twenty five hundred hours of volunteer time. That's 0:51:25.880 --> 0:51:28.359 all stuff that came from like thinking about where our 0:51:28.360 --> 0:51:31.080 workforce was today. It's not to say that our workforce 0:51:31.120 --> 0:51:33.760 wasn't very philanthropic in the nineteen nineties and two thousands. 0:51:33.800 --> 0:51:36.920 That actually was. It's just people did that more outside 0:51:36.960 --> 0:51:40.080 the office. And by the mid twenty tens are people 0:51:40.120 --> 0:51:42.279 wanted more of an integrated experience where they could do 0:51:42.600 --> 0:51:45.120 things that were philanthropic while doing their day jobs. Right, 0:51:45.160 --> 0:51:46.800 And so you have to just kind of keep a 0:51:46.880 --> 0:51:51.319 pulse to where people are today, and I've tried to 0:51:51.480 --> 0:51:54.600 really do that in terms of my role. You know, again, 0:51:54.640 --> 0:51:56.239 the place is going to be exactly the same in 0:51:56.280 --> 0:51:59.160 terms of how do you keep people in seven offices 0:51:59.320 --> 0:52:02.560 like singing from the same page. There actually were really 0:52:02.600 --> 0:52:04.680 good learning lessons from that in the pandemic, and by 0:52:04.719 --> 0:52:06.799 the way, I did my best to get people back 0:52:06.800 --> 0:52:09.400 in the office as soon as humanly possible. We returned 0:52:09.400 --> 0:52:11.080 to the office, I think well before many of our 0:52:11.120 --> 0:52:13.920 peers did. That was important to me in terms of 0:52:13.920 --> 0:52:17.759 continuity of the teams and keeping the culture. But I 0:52:17.800 --> 0:52:21.239 started doing a bi weekly email to the entire firm 0:52:21.320 --> 0:52:23.400 during the pandemic, and I did that because that was 0:52:23.400 --> 0:52:24.880 the best way to communicate with people. We did some 0:52:24.960 --> 0:52:27.040 videos and things like that too, but I wanted something 0:52:27.400 --> 0:52:30.319 in writing, and it was a combination of PEP talk, 0:52:30.600 --> 0:52:33.920 firm news, sometimes some market insights and not sure I've 0:52:33.920 --> 0:52:36.799 got amazing market insights every two weeks. But over time 0:52:36.840 --> 0:52:38.879 I certainly do right, and when I really had something 0:52:38.920 --> 0:52:41.640 to say, I would say it. And we've kept doing 0:52:41.719 --> 0:52:44.080 those even through today. It's become like a hallmark of 0:52:44.120 --> 0:52:46.440 our firm. We get very good internal feedback on that 0:52:46.480 --> 0:52:48.800 because it was important to me. That's the way everyone 0:52:48.840 --> 0:52:50.399 knows they're going to hear from me every couple weeks, 0:52:50.400 --> 0:52:51.279 no matter what. Huh. 0:52:51.320 --> 0:52:55.000 Really interesting last DK question, So you've been there for 0:52:55.040 --> 0:52:58.839 twenty seven years. Kind of unusual these days. Not many 0:52:58.840 --> 0:53:03.120 people have that sort of longevity with one firm. Tell 0:53:03.200 --> 0:53:06.640 us what's kept you at Davidson Kampner this whole time? 0:53:06.840 --> 0:53:09.520 Well, I'm very fortunate, you know, I sort of joke 0:53:09.560 --> 0:53:12.279 I show up at my college reunions, right, and if 0:53:12.320 --> 0:53:14.439 I'm not the only person who's been at one from 0:53:14.440 --> 0:53:16.920 the entire time, it's virtually virtually the only person who's 0:53:17.680 --> 0:53:21.399 done that. I got very fortunate, right, and I got 0:53:21.480 --> 0:53:23.759 very fortunate that I happened to find people that I 0:53:23.800 --> 0:53:25.960 really wanted to work with in an industry that I 0:53:26.000 --> 0:53:29.239 really liked that was growing, right, And so I think 0:53:29.239 --> 0:53:33.480 if you hadn't had any one of those three factors aligned, 0:53:34.000 --> 0:53:35.800 like you know, possibly could I could have stayed. But 0:53:35.800 --> 0:53:38.120 if there wasn't going to be a growth in the industry, 0:53:38.200 --> 0:53:39.920 I wanted there at least to be growth for me, right. 0:53:39.960 --> 0:53:41.719 I just wanted to be doing different things at a 0:53:41.719 --> 0:53:44.560 more senior level twenty seven years in than I where 0:53:44.560 --> 0:53:46.720 I started that. But fortunately all three of those things 0:53:47.360 --> 0:53:50.759 did align. Look, there's real human capital you get by 0:53:50.800 --> 0:53:52.799 being at a place for a long time, right, I mean, 0:53:52.800 --> 0:53:54.080 you know't you don't want to be somewhere for a 0:53:54.080 --> 0:53:56.319 long time just because of that, But the reality is 0:53:56.320 --> 0:53:58.080 there are switching costs that you have when you leave 0:53:59.080 --> 0:54:01.799 our roles. And so I was very fortunate that I 0:54:01.840 --> 0:54:04.839 was able to grow with the organization, and I'm very 0:54:04.880 --> 0:54:06.120 fortunate that I enjoy what I do. 0:54:06.520 --> 0:54:10.880 Huh, really really interesting. Talk a little bit about the 0:54:11.000 --> 0:54:14.880 rise of alternatives and why this has become one of 0:54:14.920 --> 0:54:19.719 the hottest parts of the investing world for really more 0:54:19.719 --> 0:54:22.799 than a decade. Certainly since the FED took rates down 0:54:22.880 --> 0:54:27.759 to zero, people started looking around DKY has a variety 0:54:27.760 --> 0:54:32.000 of different strategies. Let's start with distressed investments. Tell us 0:54:32.040 --> 0:54:34.840 a little bit about the work Decay does in distressed 0:54:34.840 --> 0:54:38.719 investments and why do you think this space has such legs? 0:54:39.239 --> 0:54:40.799 You know, I would say a couple of things on 0:54:41.120 --> 0:54:43.080 you know, we could call it distressed investments, we can 0:54:43.120 --> 0:54:46.360 call it opportistic credit. It's probably some combination of the 0:54:46.400 --> 0:54:49.960 two things. And so for Davidson Kaepner, you know, we're 0:54:50.000 --> 0:54:53.520 actively investing in both public and private markets in terms 0:54:53.560 --> 0:54:57.480 of distress data or optimistic credit. So we're buying public 0:54:57.480 --> 0:54:59.959 securities that have declined in price or with the people 0:55:00.160 --> 0:55:02.400 questions to whether the companies can mature their debt. There 0:55:02.400 --> 0:55:04.160 can be all sorts of different reasons that things are 0:55:04.160 --> 0:55:07.319 trading down, and that's one strategy. We also have a 0:55:07.360 --> 0:55:10.240 very active strategy where we've got more private equity style 0:55:10.719 --> 0:55:14.520 capital where we can basically take control of assets, fix them, 0:55:14.840 --> 0:55:18.080 sell off divisions, add things, you know, et cetera. Those 0:55:18.120 --> 0:55:21.560 are typically more like four to six year type of investments, 0:55:21.760 --> 0:55:24.080 and we're able to do this, you know, across different 0:55:24.120 --> 0:55:26.800 asset types. So we've got a big business buying real estate. 0:55:27.040 --> 0:55:29.279 We've got a big corporate business, you find a lot 0:55:29.320 --> 0:55:32.560 of things like liquidations that don't necessarily fit into any 0:55:32.680 --> 0:55:35.560 one nique category. Occasionally sovereign debts not a big part 0:55:35.600 --> 0:55:37.000 of our book, but every once in a while we've 0:55:37.000 --> 0:55:40.120 got a big evolvement with a sovereign as well. And 0:55:40.160 --> 0:55:42.120 I would say a couple of things about that strategy 0:55:42.120 --> 0:55:44.680 and why people are attracted to it. So, number one, 0:55:44.719 --> 0:55:47.319 the outright rates of return that you can earn on 0:55:47.400 --> 0:55:50.239 strategies like that, I think are compelling compared to many 0:55:50.280 --> 0:55:52.799 things in the market over time. But they also are 0:55:52.880 --> 0:55:55.880 very good diversifiers in portfolios, And so like, why are 0:55:55.880 --> 0:55:59.600 these strategies attractive to allocators? They're attractive to allocators because 0:55:59.600 --> 0:56:02.239 you can achieve your overall objectives just being in the 0:56:02.280 --> 0:56:05.960 strategy most people or not obviously, but you can also 0:56:06.000 --> 0:56:08.399 do it in a way to diversify your overall portfolio. 0:56:08.680 --> 0:56:11.680 And not only does it diversify your overall portfolio in 0:56:11.760 --> 0:56:13.759 terms of when your earn rates of return, ie, the 0:56:13.840 --> 0:56:17.680 strategies tend to do better when other strategies aren't doing well. 0:56:18.000 --> 0:56:21.719 It's sometimes when capitals return to you too. So you know, 0:56:21.800 --> 0:56:23.560 we did some work a couple of years ago We 0:56:23.600 --> 0:56:26.600 actually published a white paper on this in twenty twenty three. 0:56:27.040 --> 0:56:31.640 What there's actually an inverse correlation between when opportunistsic credit 0:56:31.680 --> 0:56:35.840 funds return capital to their LPs versus when growth equity 0:56:35.880 --> 0:56:38.960 and venture capital funds return capital to their LPs. And 0:56:38.960 --> 0:56:42.160 that kind of makes sense intellectually. So if you're you know, 0:56:42.200 --> 0:56:44.840 an allocator, you probably don't want to only have growth 0:56:44.840 --> 0:56:47.200 equity and venture capital funds in your portfolio. I think 0:56:47.239 --> 0:56:50.200 the allocators who had too many of those have some 0:56:50.239 --> 0:56:51.400 of them have learned that the hard way in the 0:56:51.440 --> 0:56:54.360 last couple of years. So those are strategies that manifest 0:56:54.360 --> 0:56:56.600 themselves over a very long period of time. But if 0:56:56.640 --> 0:56:58.920 you've had a mixture of both strategies in your portfolio, 0:56:59.160 --> 0:57:01.839 that's a much more power powerful way to earn returns them. 0:57:01.880 --> 0:57:06.600 And when you talk about distressed assets with sovereign nations, 0:57:07.000 --> 0:57:09.680 I'm imagining that it's not so much the sovereign that's 0:57:09.880 --> 0:57:14.680 distressed as whatever investing fund is the holder of that 0:57:14.800 --> 0:57:16.760 debt Or am I misreading that? 0:57:17.120 --> 0:57:19.840 Well? Look, I mean, you know these are all public names, 0:57:20.000 --> 0:57:23.640 whether it's you know, Greece or Argentina or Puerto Rico. 0:57:23.720 --> 0:57:25.880 There's a number of different sovereigns that have gone through 0:57:25.880 --> 0:57:29.280 restructurings of different sorts over the last several years. There 0:57:29.280 --> 0:57:33.520 are certainly times when holders of debt that's at least 0:57:33.560 --> 0:57:36.600 linked to municipalities, you know, may want to sell, and 0:57:36.600 --> 0:57:38.960 there's sort of force selling because of that. But I'd 0:57:39.000 --> 0:57:41.520 say more, you know, credits are credits, right, There's only 0:57:41.560 --> 0:57:44.200 so much that any one person can borrow, anyone entity 0:57:44.240 --> 0:57:47.120 can borrow, and so you know, there have been reasons 0:57:47.160 --> 0:57:50.160 you've had to restructure. Greece has been an incredibly successful restructuring. 0:57:50.200 --> 0:57:52.600 The Greek economy's booming right now, right, So that would 0:57:52.600 --> 0:57:54.280 be an example of one. And they don't come very often. 0:57:54.320 --> 0:57:55.720 It's not a very big part of our business, but 0:57:55.760 --> 0:57:58.840 they're out there in terms of things that people have 0:57:58.880 --> 0:57:59.400 invested in it. 0:57:59.560 --> 0:58:03.440 And you may public securities, I'm curious, are you buying 0:58:04.040 --> 0:58:07.080 equity in distressed companies or are you buying the debt 0:58:07.440 --> 0:58:10.720 or some combination. When we're talking about publicly traded. 0:58:10.440 --> 0:58:13.840 From it's a combination. I would say the super majority 0:58:13.920 --> 0:58:16.680 of what we're doing, certainly in the public markets is 0:58:16.800 --> 0:58:20.400 credit and it's not equities. But there are occasionally times 0:58:20.440 --> 0:58:23.680 where credit will lead us to the equities. Another strategy 0:58:23.720 --> 0:58:27.000 I will use sometimes is I may put a tale 0:58:27.040 --> 0:58:30.400 of equity onto a larger position in credit. You know, 0:58:30.600 --> 0:58:33.240 often the credit and the equity move the same way. 0:58:33.400 --> 0:58:36.280 Not always the case, but it happens frequently enough, And 0:58:36.320 --> 0:58:38.400 so if you like a credit, you know a tale 0:58:38.440 --> 0:58:40.919 of equity. My theory is, if it doesn't work, you've 0:58:40.920 --> 0:58:44.040 just spent some of your coupon on sort of equity optionality. 0:58:44.040 --> 0:58:45.840 If it does work, you can really juice your return. 0:58:46.080 --> 0:58:48.280 So again, not something we do in every time, in 0:58:48.320 --> 0:58:51.040 all the situations, many of the companies we invest in 0:58:51.200 --> 0:58:54.040 public credit actually are private companies, so there's no opportunity 0:58:54.080 --> 0:58:57.280 to do that in those obviously, But every once in 0:58:57.320 --> 0:58:59.320 a while, a credit opportunity will lead us to an 0:58:59.320 --> 0:59:00.160 equity opportunity. 0:59:00.400 --> 0:59:04.920 And you've mentioned also that you're expecting some form of 0:59:04.960 --> 0:59:08.680 an M and A revival. Let's talk about that. Is 0:59:08.760 --> 0:59:12.440 this structural because we've gone through such a long period 0:59:12.600 --> 0:59:16.160 of low rates, not a lot of M and A activity, 0:59:16.360 --> 0:59:21.360 and some administrative hostility to big mergers. Is this the 0:59:21.400 --> 0:59:24.040 politics of the moment or is it just, Hey, it's 0:59:24.040 --> 0:59:27.760 been so long since it's been consolidation and we're due. 0:59:27.520 --> 0:59:30.000 Well, I put it into two categories. And so I've 0:59:30.080 --> 0:59:33.320 now been at David and Kapner long enough that I 0:59:33.520 --> 0:59:37.320 was at Decay for multiple Democratic and Republican administrations prior 0:59:37.360 --> 0:59:41.240 to the Biden administration, and in most administrations, the people 0:59:41.280 --> 0:59:44.560 who are setting the anti trust policy are career professionals. 0:59:44.600 --> 0:59:46.520 It's a science, right, There's a lot of math behind 0:59:46.520 --> 0:59:48.240 the science it's been. I studied in law school. I'm 0:59:48.240 --> 0:59:50.400 sure you studied in law school as well, and so 0:59:50.760 --> 0:59:52.840 my take was that the decisions would mostly be the 0:59:52.880 --> 0:59:57.080 same whether a Republican or Democratic administration, and then a 0:59:57.080 --> 0:59:59.520 couple times in administration they make a case in something 0:59:59.760 --> 1:00:02.800 that they really thought they wanted to go after. So 1:00:02.920 --> 1:00:04.960 you know, there were some prominent cases, and both the 1:00:04.960 --> 1:00:08.720 first Trump administration and the Obama administration in that regard. 1:00:09.280 --> 1:00:12.360 The by administration tried to change the anti trust laws 1:00:12.480 --> 1:00:15.360 and they tried to use the laws as deterrence in 1:00:15.400 --> 1:00:17.160 terms of people doing mergers, and it was actually very 1:00:17.160 --> 1:00:19.600 effective in that regard, because you know, if you're a 1:00:19.640 --> 1:00:22.000 corporate CEO or you're a board and you think you're 1:00:22.000 --> 1:00:24.280 gonna get stuck in eighteen to twenty four months of 1:00:24.320 --> 1:00:26.720 litigation and your merger may not go through. You might 1:00:26.720 --> 1:00:28.640 just choose not to do the merger, right, And so 1:00:29.120 --> 1:00:32.920 you fast forward to twenty twenty five. It's not totally 1:00:32.960 --> 1:00:34.960 clear what the new anti trust regime is going to be, 1:00:35.040 --> 1:00:36.480 but all signs are it's going to be much more 1:00:36.480 --> 1:00:38.800 accommodating to mergers. Maybe not in every industry. I'm not 1:00:38.880 --> 1:00:41.080 sure this is true in big tech, but in many 1:00:41.080 --> 1:00:44.240 other industries as well. And so you've got a number 1:00:44.320 --> 1:00:47.000 of management teams and boards that we think have been 1:00:47.040 --> 1:00:49.600 sitting on the sideline. And then you know, people need 1:00:49.640 --> 1:00:52.520 to find growth, right and M and A is sometimes 1:00:52.520 --> 1:00:55.520 an easy way for people to find growth in their businesses. 1:00:55.520 --> 1:00:56.800 There are a lot of businesses that deserve to be 1:00:56.840 --> 1:01:00.640 consolidated or should be consolidated, and you know, the fancy 1:01:00.760 --> 1:01:03.160 markets I think are very amenable to it, right. A 1:01:03.480 --> 1:01:06.120 lot of pent up demand, a lot of pent up demand, 1:01:06.520 --> 1:01:10.080 a lot of demand for new debt to finance acquisitions 1:01:10.080 --> 1:01:12.320 for sure, because there's you know, a huge amount of 1:01:12.320 --> 1:01:15.600 demand for performing debt in general right now. So you know, 1:01:15.880 --> 1:01:18.160 in my mind, this is probably a US centric story 1:01:18.440 --> 1:01:20.280 first and foremost. You may see some in Europe, but I 1:01:20.280 --> 1:01:21.920 think you're going to see a lot more in the US. 1:01:22.080 --> 1:01:24.200 I don't know if it's two months into the administration 1:01:24.280 --> 1:01:26.280 or ten months into the administration, but I think it's coming. 1:01:26.640 --> 1:01:29.880 And these things tend to have positive effects, Like the 1:01:29.880 --> 1:01:31.240 more M and A you get, the more M and 1:01:31.280 --> 1:01:33.480 A you'll have because all of a sudden, if you're 1:01:33.680 --> 1:01:36.360 in an industry and two of your competitors have done 1:01:36.400 --> 1:01:38.640 a deal and you haven't, you're behind and it can 1:01:38.680 --> 1:01:41.439 actually endanger your franchise. And so you know, it tends 1:01:41.480 --> 1:01:42.720 to be there's a reason why the M and A 1:01:42.800 --> 1:01:45.440 comes in buckets in terms of like specific industries. Sure, 1:01:45.440 --> 1:01:47.840 and so once that like flywheel effect happens, I think 1:01:47.880 --> 1:01:50.640 you'll see a lot more of it. So that that's 1:01:50.680 --> 1:01:52.440 my viewpoint on where m ANDA is heading in twenty 1:01:52.480 --> 1:01:52.920 twenty five. 1:01:53.160 --> 1:01:57.680 So let's talk about real estate. It's certainly been tumultuous 1:01:57.680 --> 1:02:02.600 and you've mentioned dispersion earlier in equity and credit, wide 1:02:02.680 --> 1:02:06.600 range of different real estate opportunities. How are you looking 1:02:06.640 --> 1:02:08.800 at the space? What are you seeing in terms of 1:02:08.960 --> 1:02:12.560 credit and especially distressed and opportunistic credit. 1:02:12.680 --> 1:02:14.440 Yeah, so I would say a couple of things. First 1:02:14.480 --> 1:02:17.400 of all, we take a very opportunistic approach into how 1:02:17.400 --> 1:02:20.160 we invest in real estate, and so we don't limit 1:02:20.200 --> 1:02:23.320 ourselves by geography. We primarily invest in the US and Europe, 1:02:23.320 --> 1:02:26.400 but we're willing to invest across those two areas, and 1:02:26.440 --> 1:02:28.720 we don't limit ourselves in product type. And so we're 1:02:28.720 --> 1:02:33.560 happy to invest in self storage or industrial or data 1:02:33.560 --> 1:02:36.440 centers or residential or whatever it is that we think 1:02:36.440 --> 1:02:40.040 provides the best risk return in a given country. Many 1:02:40.080 --> 1:02:42.919 real estate investors don't invest that way. Many real state 1:02:42.960 --> 1:02:45.840 investors specialize in a country, or they specialize in a sector. 1:02:46.360 --> 1:02:48.320 I think that's hard. I mean, if you look at 1:02:48.320 --> 1:02:51.760 the last fifteen years, right, and you were to go back, 1:02:51.880 --> 1:02:54.480 you know, I don't know twenty ten, right, So I 1:02:54.520 --> 1:02:57.720 think retail assets and office assets would have been perceived 1:02:57.840 --> 1:03:02.080 much better in twenty ten. I think that data center 1:03:02.360 --> 1:03:05.080 assets and industrial assets would have been perceived much worse 1:03:05.120 --> 1:03:08.120 in twenty ten. Right. So just like there's I don't 1:03:08.120 --> 1:03:10.160 have a mathematical answer for this, but just like there's 1:03:10.600 --> 1:03:13.240 substantial dispersion and performance and equity and credit markets, I 1:03:13.280 --> 1:03:17.880 think there's actually substantial dispersion in performance in real estate 1:03:17.920 --> 1:03:20.320 markets as well. And geography too. By the way, there's 1:03:20.360 --> 1:03:22.360 geographies that have been big winners and geographies that have 1:03:22.400 --> 1:03:24.320 been big losers, And so you could have been the 1:03:24.360 --> 1:03:26.880 best office fund manager for the last fifteen years, and 1:03:26.920 --> 1:03:28.800 it's been a really hard place to make money, right, 1:03:28.840 --> 1:03:31.320 And so we try to take that out by investing 1:03:31.360 --> 1:03:34.920 across these areas. So the benefit of doing opportunistic real 1:03:34.960 --> 1:03:37.720 estate investing, and I don't just mean across geography or 1:03:37.760 --> 1:03:39.680 product type within real estate, but I mean buying into 1:03:39.680 --> 1:03:42.720 assets that other people don't want to own, is real 1:03:42.800 --> 1:03:45.600 estate markets have gotten hit much harder by the rise 1:03:45.600 --> 1:03:47.960 of interest rates, even that corporate markets have, you know, 1:03:48.000 --> 1:03:50.320 corporates at least there's been some growth, right, So real 1:03:50.400 --> 1:03:53.280 estate much less growth in terms of rents in most 1:03:53.280 --> 1:03:55.280 of these areas. Data centers and industrial would be an 1:03:55.320 --> 1:03:59.240 exception to that. And the covenants in real estate debt 1:03:59.280 --> 1:04:01.919 are much less for giving than they are in corporate debt, 1:04:02.200 --> 1:04:04.200 and the term of the debt is much shorter in 1:04:04.240 --> 1:04:06.160 real estate debt than it is in corporate debt. And 1:04:06.240 --> 1:04:08.840 so the crisis in real estate is like here and 1:04:08.880 --> 1:04:12.160 coming very quickly compared to maybe corporates, where companies in 1:04:12.160 --> 1:04:13.800 some cases have a little bit more duration, a little 1:04:13.800 --> 1:04:16.760 bit more time to try to solve their problems. And 1:04:16.800 --> 1:04:19.240 so you know, for us, real estate's a very interesting 1:04:19.280 --> 1:04:21.480 asset class. It's an asset class many people avoided in 1:04:21.480 --> 1:04:23.920 the twenty tens with rates where they were. I think 1:04:23.920 --> 1:04:25.600 there's a lot more alligat or interest in it than 1:04:25.640 --> 1:04:28.800 there was previously. There's different approaches, there's different ways to 1:04:28.840 --> 1:04:31.800 win in it, but we think it's very worthy of 1:04:31.800 --> 1:04:32.280 our attention. 1:04:32.880 --> 1:04:36.520 You mentioned it has been fun to be a manager 1:04:36.680 --> 1:04:42.160 of investments in office space outside of the super A's. 1:04:42.600 --> 1:04:46.440 Everybody else seems to be struggling. You look over at 1:04:46.480 --> 1:04:52.120 Hudson Yards, a giant layout of capital. Generally speaking, the 1:04:52.200 --> 1:04:56.400 castle carts wipe tracking is still showing with fifty sixty 1:04:56.520 --> 1:05:00.880 seventy percent back to return to office. I remember after 1:05:00.960 --> 1:05:05.280 nine to eleven all of Lower Manhattan was it was 1:05:05.440 --> 1:05:09.920 just a boom in converting office space to residential. Seems 1:05:09.960 --> 1:05:11.960 like you kill two birds with one stone if we 1:05:12.080 --> 1:05:16.040 do that in Manhattan and elsewhere, is that a viable 1:05:16.800 --> 1:05:21.440 opportunistic space in real estate or is it just building 1:05:21.480 --> 1:05:22.800 by building case by case. 1:05:22.840 --> 1:05:25.200 It's it's building by a building, case by case. There 1:05:25.280 --> 1:05:27.200 have been some issues in New York. I think actually 1:05:27.240 --> 1:05:28.880 we're in among the best positions of any of the 1:05:28.880 --> 1:05:30.360 cities in the US in terms. 1:05:30.120 --> 1:05:33.080 Of really, oh yeah, that was not the general consent. 1:05:33.440 --> 1:05:35.480 You go to Chicago, or you go to San Francisco, 1:05:35.880 --> 1:05:38.680 some of these places, it's it's still a ghost town. 1:05:38.840 --> 1:05:40.520 You know, we have many more people come into the 1:05:40.560 --> 1:05:42.960 office here because it is a vibrancy in New York 1:05:42.960 --> 1:05:45.240 that New York has. You know, every time every. 1:05:45.120 --> 1:05:47.120 Time someone tells me New York City is dead, I'm like, 1:05:47.160 --> 1:05:51.560 have you been here recently? It's you can't get rest reservations. 1:05:51.960 --> 1:05:56.240 Broadway plays are sold out. Torstan Slock actually tracks Broadway. 1:05:56.320 --> 1:06:00.760 It's back to above pre pandemic levels. Like, every time 1:06:00.840 --> 1:06:03.120 I hear about the death in New York, it's always 1:06:03.120 --> 1:06:05.480 from people who haven't visited in a decade. 1:06:05.560 --> 1:06:07.520 Yeah. No, I'm very fortunate that I get to go 1:06:07.560 --> 1:06:09.120 to most of the major cities in the US on 1:06:09.160 --> 1:06:10.880 a regular basis, and so I get to see it 1:06:10.920 --> 1:06:13.080 with my own eyes, and I agree with you one 1:06:13.120 --> 1:06:16.840 hundred percent. Look, it's building by building because office conversion 1:06:16.960 --> 1:06:18.640 to residential is not so. 1:06:18.760 --> 1:06:23.080 Easy, especially some of the sixties and seventies buildings where 1:06:23.120 --> 1:06:25.000 there's no windows. 1:06:24.640 --> 1:06:26.960 That's what I was gonna say as a starting point, right, 1:06:27.040 --> 1:06:29.120 So a lot of office buildings are square and a 1:06:29.120 --> 1:06:33.000 lot of residential buildings are rectangle. And it's because there's 1:06:33.040 --> 1:06:35.120 this rule that we have in New York City where 1:06:35.160 --> 1:06:38.800 I think every livable room has to have a window 1:06:39.440 --> 1:06:41.520 in it, right, And so very hard to put a 1:06:41.520 --> 1:06:44.680 window in all the square floor plan rooms, right. You 1:06:44.720 --> 1:06:47.040 want up with a huge amount of a square footage 1:06:47.040 --> 1:06:49.960 in the middle of the building that potentially becomes unusable, right, 1:06:50.000 --> 1:06:51.640 And then it's a huge cost to retrofit. 1:06:51.760 --> 1:06:51.840 Right. 1:06:51.920 --> 1:06:54.760 So in many cases you're actually better just tearing the 1:06:54.760 --> 1:06:57.120 thing down and starting over. But if you look at 1:06:57.120 --> 1:07:00.200 the price that loans trade at, most of them don't 1:07:00.200 --> 1:07:01.960 assume you're doing that, right, So you're not buying them 1:07:02.000 --> 1:07:05.320 for land value or things along those lines. Maybe occasionally 1:07:05.320 --> 1:07:07.640 at the opportunity, but it's not regular, so you have 1:07:07.680 --> 1:07:09.040 to kind of pick your spots. It's not to say 1:07:09.080 --> 1:07:11.360 there aren't conversions that that makes sense. There definitely are 1:07:11.720 --> 1:07:13.320 some of those, but I don't think it's the majority 1:07:13.360 --> 1:07:15.720 of situations, And so you know, you do, and it 1:07:15.760 --> 1:07:18.560 really is the sixties and seventies buildings that are the 1:07:18.560 --> 1:07:20.720 ones that are in trouble. Because you know, I think 1:07:20.760 --> 1:07:24.200 about like Midtown East where we are right now, it 1:07:24.240 --> 1:07:26.000 actually isn't so easy to get space in mid ten 1:07:26.040 --> 1:07:29.480 East right now because guess what the Plaza district, which 1:07:29.520 --> 1:07:31.960 is what it's widely called, it is like a super 1:07:31.960 --> 1:07:33.640 popular place to be. Not everyone wants to be in 1:07:33.720 --> 1:07:36.440 huts and yards no offense. And so if you want 1:07:36.440 --> 1:07:37.919 to be in this area and you want office space, 1:07:37.960 --> 1:07:39.600 there's only so much of it, right And by the way, 1:07:39.840 --> 1:07:42.160 because rates are high and people are down on office, 1:07:42.160 --> 1:07:43.600 they're not building a lot more of it. And it's 1:07:43.640 --> 1:07:46.200 super expensive to build more of it. I mean, the 1:07:46.200 --> 1:07:48.640 cost of what JP Morgan's doing on Park Avenue in 1:07:48.640 --> 1:07:51.560 the forties is astronomical, right, and so not everyone could 1:07:51.560 --> 1:07:53.400 afford to do that or wants to invest in that. 1:07:53.480 --> 1:07:55.000 And so if you want to be in the area, 1:07:55.080 --> 1:07:57.720 actually people are rapid or running out of space. That's 1:07:57.760 --> 1:08:00.400 not true for Class B buildings, right, all the things 1:08:00.440 --> 1:08:02.560 you can can't give away in terms of my spaces, 1:08:02.640 --> 1:08:04.920 and so you know, you may have you know, eventually 1:08:04.960 --> 1:08:06.880 the market will come to equilibrium, right, but it has 1:08:07.320 --> 1:08:08.120 you brought something. 1:08:08.000 --> 1:08:11.040 Up that I'm kind of intrigued by. The market has 1:08:11.120 --> 1:08:14.680 yet to price out a lot of these buildings as 1:08:15.120 --> 1:08:18.240 only worth land value. They're still valuing as if hey, 1:08:18.280 --> 1:08:20.360 we're going to have a seventy five percent occupancy rate 1:08:20.400 --> 1:08:23.200 for the next thirty years. What's it going to take 1:08:23.320 --> 1:08:28.160 for that mispricing to get more in line with what's 1:08:28.200 --> 1:08:29.880 going on on the ground. 1:08:30.040 --> 1:08:32.880 You know, my experience with private assets in general is 1:08:32.920 --> 1:08:36.400 eventually buyers and sellers find each other, right, and essentially, 1:08:36.479 --> 1:08:39.519 you know, that usually is more pain for the sellers, 1:08:39.600 --> 1:08:41.439 and usually buyers get a little bit more realistic about 1:08:41.439 --> 1:08:43.639 how cheaply they're gonna buy things. And by the way, 1:08:43.640 --> 1:08:46.920 it's also banks and owners of assets, right. So you know. 1:08:46.960 --> 1:08:49.639 The other thing is institutions don't like to sell assets 1:08:49.680 --> 1:08:52.519 at a discount where they're marked at them right, And 1:08:52.600 --> 1:08:55.200 so the first place is for marks to get correct, right. So, 1:08:55.240 --> 1:08:57.120 whether it's real estate funds and their marks or whether 1:08:57.160 --> 1:08:59.240 it's banks and their marks. You know, once things are 1:08:59.280 --> 1:09:01.240 marked down at they can sell alone at a profit. 1:09:01.280 --> 1:09:03.240 They're much more likely to get sold. And that just 1:09:03.280 --> 1:09:05.519 takes time. I mean, that could take years in terms 1:09:05.560 --> 1:09:05.800 of word. 1:09:05.840 --> 1:09:09.479 That's really wow, that's that's quite amazing. So we've covered 1:09:09.800 --> 1:09:13.360 opportunistic credit, we've covered m and A, we've covered real estate. 1:09:14.200 --> 1:09:17.400 I have to get into the world of acronyms. You 1:09:17.520 --> 1:09:21.800 have to explain to me what are lmees and piks. 1:09:21.840 --> 1:09:23.240 I don't know how you pronounce either. 1:09:23.560 --> 1:09:29.000 So lmes or liability management exercises liability. 1:09:29.160 --> 1:09:32.040 So if you're an insurance company or more likely a 1:09:32.120 --> 1:09:34.639 pension funds and you know you're going to owe out 1:09:34.840 --> 1:09:36.840 X ten, fifteen, twenty years from. 1:09:36.720 --> 1:09:40.320 Now is now. These are corporate issuers. So basically, if 1:09:40.320 --> 1:09:43.320 you look at corporate debt, right, so ninety percent of 1:09:43.360 --> 1:09:45.560 the debt that gets issued in leverage loan markets in 1:09:45.600 --> 1:09:49.840 public markets has fairly like covenants in it. And so 1:09:49.880 --> 1:09:53.240 what that allows companies to do is basically have carve 1:09:53.320 --> 1:09:56.360 outs of baskets where they can offer to creditors a 1:09:56.479 --> 1:09:59.280 chance to exchange their debt for a smaller amount of 1:09:59.320 --> 1:10:02.400 debt that might rank ahead of you in the capital structure. Right, 1:10:02.439 --> 1:10:04.559 So if you own a bunch of unsecured debt and 1:10:04.720 --> 1:10:06.160 they come to you and they say, well, you're owed 1:10:06.160 --> 1:10:07.680 a one hundred cents, but we're going to offer you 1:10:07.680 --> 1:10:10.920 seventy five cents of you know, debt that's got a 1:10:11.040 --> 1:10:13.519 higher coupon and it's higher in the capital structure than 1:10:13.680 --> 1:10:16.719 where you were, and so you almost are co opted 1:10:16.760 --> 1:10:19.599 into having to take that agreement because if everyone else 1:10:19.640 --> 1:10:21.880 takes it and you don't take it, all of a sudden, 1:10:21.880 --> 1:10:24.040 you've been primed by everyone else in your capital structure, 1:10:24.240 --> 1:10:27.200 even if it's only seventy five percent of the amount. 1:10:27.280 --> 1:10:30.479 And so that's a very active exercise that's going on 1:10:30.760 --> 1:10:34.960 in public markets right now. Some of the companies have 1:10:35.040 --> 1:10:37.840 to do this because they don't have any other chance 1:10:37.840 --> 1:10:40.439 to right size their capital structures. Other companies are trying 1:10:40.479 --> 1:10:42.200 to do an opportunistically. They say, Hey, if we can 1:10:42.200 --> 1:10:45.200 get something from the creditors for nothing, why don't we 1:10:45.240 --> 1:10:45.519 do that. 1:10:45.680 --> 1:10:47.800 What's the flip side of that? It sounds like the 1:10:47.920 --> 1:10:50.720 creditors are right, they're getting secured where they might not 1:10:50.800 --> 1:10:54.040 have been earlier, but they wanted the higher yield and 1:10:54.120 --> 1:10:57.200 they're taking a big hit. Are they unhappy about this 1:10:57.320 --> 1:10:59.320 or is this just Hey, it's a risk. 1:10:59.479 --> 1:11:01.760 It depends on the creditors. So the term that gets 1:11:01.800 --> 1:11:03.920 used a lot, which I don't think is great, is 1:11:03.960 --> 1:11:05.280 creditor on credit or violence. 1:11:05.600 --> 1:11:05.880 Right. 1:11:06.040 --> 1:11:09.719 So there's some of it that's driven by the companies, 1:11:09.760 --> 1:11:11.519 and there's some of it that's driven by creditors, and 1:11:11.520 --> 1:11:14.000 the creditors may say, hey, we're gonna put some some 1:11:14.160 --> 1:11:17.120 new money in alongside with that seventy five percent, and 1:11:17.160 --> 1:11:19.200 we're gonna make sure we're first in line for that 1:11:19.439 --> 1:11:21.640 seventy five cents, so we're gonna get paid first. And 1:11:21.880 --> 1:11:23.800 the other you know, usually less than fifty percent of 1:11:23.840 --> 1:11:26.160 the capital structure that's not along with us. They're gonna 1:11:26.160 --> 1:11:27.760 get less, and then we're gonna look even better than 1:11:27.760 --> 1:11:29.280 they look because we've gotten a better return on the 1:11:29.320 --> 1:11:34.040 same that's creditor creditor. It's just a perfect violence there. Well, 1:11:34.880 --> 1:11:38.280 you all may have invented it. I didn't invent I No, I've. 1:11:37.680 --> 1:11:41.400 Never heard it before. But it's both perfect and a music. 1:11:41.479 --> 1:11:44.120 So you know, that's that's one of the big themes 1:11:44.120 --> 1:11:47.320 that's going on in the public markets. In the private markets, 1:11:47.400 --> 1:11:49.920 more people are doing what's called so p i K 1:11:50.200 --> 1:11:53.519 is often called picking. It's payment in kind and so 1:11:53.640 --> 1:11:56.240 you know, if you're a direct corporate lender and there's 1:11:56.240 --> 1:11:57.679 you know, there might be five people in your group, 1:11:57.680 --> 1:11:59.599 and there might be twenty people in your group. They 1:11:59.680 --> 1:12:01.960 usually try to work together on things. Although I think 1:12:01.960 --> 1:12:04.120 even the fabric of that is starting to fray a bit, 1:12:05.040 --> 1:12:08.599 and they may say, okay, company, you can't pay your debt, 1:12:08.640 --> 1:12:10.559 we're gonna stay marked at park. So we're gonna keep 1:12:10.600 --> 1:12:12.400 the debt at par, but we're not going to make 1:12:12.400 --> 1:12:13.880 you pay interest for the next year or two while 1:12:13.880 --> 1:12:15.920 you right size your business, and we're going to tack 1:12:15.960 --> 1:12:18.240 that onto the principle. So if it's ten percent coupon 1:12:18.280 --> 1:12:19.800 a year, you're not going to it's one hundred. You know, 1:12:19.960 --> 1:12:22.920 it's one hundred and twenty of principle, and during that 1:12:22.960 --> 1:12:24.960 coupon holiday, you're going to fix your business. So the 1:12:24.960 --> 1:12:26.920 business is magically worth one hundred and twenty at ten 1:12:27.320 --> 1:12:27.640 uh huh. 1:12:27.720 --> 1:12:31.080 So in other words, that they waive their payment stream 1:12:31.200 --> 1:12:34.080 for that period, but they're not just taking that payment 1:12:34.120 --> 1:12:36.639 stream and attacking it on at the end. They're taking 1:12:36.640 --> 1:12:40.400 that payment stream plus. And it sounds like there's a 1:12:40.439 --> 1:12:41.280 little market. 1:12:41.360 --> 1:12:44.720 There's usually there's usually an additional amount of interest that 1:12:44.760 --> 1:12:48.000 you might get for picking versus paying cash pay, but 1:12:48.120 --> 1:12:51.120 fundamentally that lender is marking it at par usually or 1:12:51.120 --> 1:12:53.479 some high nineties price because they're saying, hey, we're not 1:12:53.520 --> 1:12:55.320 getting this cash currently, but we're going to get it 1:12:55.320 --> 1:12:57.320 in the future, and so it's just part of the loan. 1:12:57.960 --> 1:12:59.840 And that's a different way of sort of achieving in 1:13:00.479 --> 1:13:03.879 private markets. What is happening in public markets with liability 1:13:03.880 --> 1:13:06.559 management exercises, but it's been being done in a way 1:13:06.600 --> 1:13:09.080 where there's no mark to market. That only works if 1:13:09.080 --> 1:13:11.400 the loan is worth par at the end at the 1:13:11.479 --> 1:13:13.160 new amount. Right, So if the loan is worth one 1:13:13.240 --> 1:13:15.479 hundred and twenty cents at the end of this, that's 1:13:15.520 --> 1:13:18.200 when that works. If the company isn't worth more, and 1:13:18.280 --> 1:13:20.240 often the companies might be worth less to the end 1:13:20.240 --> 1:13:21.840 of this process, you wind up with a loan that's 1:13:21.880 --> 1:13:24.599 got less value. If the company was worth ninety cents 1:13:24.600 --> 1:13:26.479 to begin with, instead of being ninety out of one hundred, 1:13:26.479 --> 1:13:28.200 you're ninety out of one hundred and twenty. So all 1:13:28.240 --> 1:13:30.080 of a sudden, what's left is worth seventy five cents. 1:13:30.160 --> 1:13:33.880 And so it's a way to postpone problems for a 1:13:33.920 --> 1:13:37.840 few years. It doesn't always solve problems. Liability management exercises 1:13:37.880 --> 1:13:39.920 are a way to postpone problems for a few years. 1:13:40.200 --> 1:13:41.879 They also often don't solve problems. 1:13:42.320 --> 1:13:46.800 You guys manage a lot of different types of assets 1:13:47.200 --> 1:13:53.920 both geographically, risk wise, strategy wise, public private equity debt. 1:13:54.760 --> 1:13:59.400 How do you manage your risk across all these diverse strategies. 1:14:00.120 --> 1:14:03.600 We have a framework where we look at individual strategies, 1:14:03.640 --> 1:14:05.360 and so there might be a different framework and how 1:14:05.360 --> 1:14:08.639 we manage risk and our convertible arbitrage strategy for example, 1:14:08.720 --> 1:14:12.000 then how we manage risk and an opportunistic credit strategy, 1:14:12.080 --> 1:14:14.600 And then we try to look across at risk across strategies, 1:14:14.600 --> 1:14:17.760 and risk across strategies is harder to measure than risk 1:14:17.960 --> 1:14:21.080 in individual strategies. I mean, some of it's obvious, right 1:14:21.120 --> 1:14:23.760 If you have the same q SIPs or positions in 1:14:23.800 --> 1:14:27.880 a public markets fund that happened to be in different areas, 1:14:27.920 --> 1:14:29.760 that's an obvious area that you're going to find risk. 1:14:30.040 --> 1:14:32.599 You know, industry concentration will be the second most obvious 1:14:32.640 --> 1:14:35.240 area that you're going to find risk. You know, things 1:14:35.320 --> 1:14:37.200 like how are each of our books going to perform 1:14:37.280 --> 1:14:40.400 during a COVID type crisis or a GFC crisis. You 1:14:40.479 --> 1:14:43.840 stress test, but ultimately you don't know, right because you 1:14:43.840 --> 1:14:46.160 know there are different markets that do better than you 1:14:46.200 --> 1:14:47.920 think in different markets and worse than you think in 1:14:47.960 --> 1:14:50.320 different markets, And so you know, it goes down to 1:14:50.360 --> 1:14:52.639 my basics. You know, the thing we have a risk 1:14:52.720 --> 1:14:56.200 arbitrage business is it allows you to think about risk 1:14:56.360 --> 1:14:59.360 reasonably simply. You know, the risk arbitise mantras. What can 1:14:59.400 --> 1:15:01.640 you make if if your deal closes, and that's a 1:15:01.640 --> 1:15:04.080 pretty defined amount of money. What do you lose if 1:15:04.080 --> 1:15:07.200 your deal doesn't close? And we're pretty good at calculating that, 1:15:07.720 --> 1:15:11.840 what's the probability of success? And then what's the probability 1:15:11.880 --> 1:15:14.200 that the market is implying with its price to success? 1:15:14.360 --> 1:15:16.120 And if you can get those four things right, it's 1:15:16.160 --> 1:15:18.799 basically like poker, you can underwrite everything right. And ultimately, 1:15:18.840 --> 1:15:20.920 if you know your odds every time, you can win 1:15:20.960 --> 1:15:24.040 consistently over time. You know, you try to take that 1:15:24.080 --> 1:15:26.639 mantra and you apply it everywhere else. Unfortunately, most other 1:15:26.640 --> 1:15:29.000 parts of our portfolio, there's several different scenarios things can 1:15:29.000 --> 1:15:31.400 go down, So I go back and credit in particular. 1:15:31.640 --> 1:15:33.200 You know, one of the questions we like to ask 1:15:33.320 --> 1:15:34.960 is what are all the bad things that can happen 1:15:35.000 --> 1:15:36.880 to us where we still get our money back? Right? 1:15:36.920 --> 1:15:38.880 And that's sort of how I sort of this trading risk. 1:15:38.920 --> 1:15:42.120 And there's ultimate downside risk and I like investments where 1:15:42.640 --> 1:15:44.760 you could really really stress it and you're still going 1:15:44.800 --> 1:15:45.800 to get most of all your money. 1:15:46.080 --> 1:15:47.840 All right, So let me throw you one curve ball 1:15:47.880 --> 1:15:51.360 before we jump into our favorite questions. And that's your 1:15:51.439 --> 1:15:54.599 chairman of the New York Public Library Investment Committee, your 1:15:54.800 --> 1:15:59.200 vice chair of the investment committee at New York Presbyterian, 1:15:59.240 --> 1:16:02.880 and you also sit on the committee for Princeton's endowment. 1:16:03.400 --> 1:16:07.599 These are three very distinct sort of endowments. That has 1:16:07.640 --> 1:16:10.320 to be a fascinating set of experiences. Tell us a 1:16:10.320 --> 1:16:13.120 little bit about all three of those entities that you 1:16:13.600 --> 1:16:15.519 are either sitting on today or have worked on in 1:16:15.520 --> 1:16:15.920 the past. 1:16:16.000 --> 1:16:18.760 Yeah, So, first of all, I'm very fortunate to be 1:16:18.800 --> 1:16:21.280 involved with all three great institutions. I serve on all 1:16:21.320 --> 1:16:24.519 of their boards of trustees. There are all institutions that 1:16:24.560 --> 1:16:27.240 are very near and dear to my heart for different reasons. 1:16:27.680 --> 1:16:30.960 The super majority of my wife and my philanthropy is 1:16:31.000 --> 1:16:33.439 in the education space. My wife served for a long 1:16:33.479 --> 1:16:36.599 time on the board of trustees of Herama Mater Birdmar College. 1:16:36.840 --> 1:16:40.000 I'm very fortunate that I can serve these institutions in 1:16:40.000 --> 1:16:41.760 a way that they find helpful. They've allly asked me 1:16:41.840 --> 1:16:44.840 to serve on their investment committees, which is why I've 1:16:44.840 --> 1:16:47.799 done so. New York Presbyterian is newer. I got involved 1:16:47.800 --> 1:16:49.920 in that in twenty twenty one, and that was a 1:16:49.960 --> 1:16:53.160 situation where I felt like the city needed me in 1:16:53.200 --> 1:16:55.920 the healthcare organization in the city needed me. I had 1:16:55.960 --> 1:16:58.719 a very close relationship with that institution, so it wasn't random, 1:16:58.840 --> 1:17:00.680 but it was one where kind of came to it 1:17:01.720 --> 1:17:03.880 later on. And in terms of the endowments, they're all 1:17:04.000 --> 1:17:07.479 very different. I mean, New York Presbyterian is in the 1:17:07.520 --> 1:17:11.759 low double digit billions, New York Public Library is between 1:17:11.800 --> 1:17:13.640 one and a half and two billion, and Princeton is 1:17:14.280 --> 1:17:16.080 in the thirties. In terms of what they are, they 1:17:16.120 --> 1:17:19.600 require different things. In terms of being a trustee. You know, 1:17:19.640 --> 1:17:22.320 at a smaller institution, you typically have a board driven model, 1:17:22.360 --> 1:17:26.240 with the board at least formally is approving investments. We're fortunately, 1:17:26.240 --> 1:17:28.639 I've got really really strong teams in all three places, 1:17:28.720 --> 1:17:31.280 so we've got great, great investment professionals that work at 1:17:31.280 --> 1:17:34.000 each of those institutions. But you know, smaller endowments tend 1:17:34.000 --> 1:17:36.160 to be board driven models and larger endowments tend to 1:17:36.160 --> 1:17:39.599 be staff driven models, where your role as being a 1:17:39.600 --> 1:17:41.960 trustee or on an investment committee is more guard rails 1:17:42.240 --> 1:17:45.240 than anything else. Each of those committee is kind of 1:17:45.400 --> 1:17:47.479 as a different approach and how they want to run 1:17:47.520 --> 1:17:51.280 their portfolios and manage their portfolios. And you know, I 1:17:51.360 --> 1:17:52.960 like to think I contribute to the meetings. I also 1:17:53.040 --> 1:17:55.400 learn a lot while while I'm there. Right, I'm certainly 1:17:55.439 --> 1:17:59.600 a subject matter expert in each of the areas that 1:17:59.640 --> 1:18:02.439 we invest in. I think I'm reasonably knowledgeable about all 1:18:02.439 --> 1:18:04.160 the areas that all the endowments invest in, but I'm 1:18:04.160 --> 1:18:06.200 not a subject matter expert in venture capital or things 1:18:06.200 --> 1:18:10.439 along those lines. And so it's been a fantastic experience 1:18:10.479 --> 1:18:12.240 and a good way to give back. But you know, 1:18:12.479 --> 1:18:14.720 when you're at a smaller endowment, and I don't view 1:18:14.800 --> 1:18:16.360 too belion is small in the real world. But like 1:18:16.360 --> 1:18:17.760 when you're at a smaller endowment, you have to think 1:18:17.800 --> 1:18:20.360 about things differently. You're gonna have less staffing, you can 1:18:20.400 --> 1:18:23.800 cover less number of managers. Your institution's needs with respect 1:18:23.840 --> 1:18:26.240 to your cash flow might be different. At a larger institution. 1:18:26.680 --> 1:18:28.320 You have to put each of them in framework in 1:18:28.400 --> 1:18:31.040 terms of what you're trying to achieve, and you have 1:18:31.080 --> 1:18:33.280 to make sure this's buy into that model up and 1:18:33.320 --> 1:18:36.320 down the organization. So the investment commit needs to buy 1:18:36.320 --> 1:18:38.240 into what the staff is doing, which needs to buy in. 1:18:38.640 --> 1:18:40.280 There needs to be buy in from what the management 1:18:40.320 --> 1:18:42.360 of the organization is doing. There needs to be buying 1:18:42.360 --> 1:18:44.080 from the full board. When you get all four of 1:18:44.120 --> 1:18:46.120 those things right, you can do really powerful things. 1:18:46.280 --> 1:18:49.400 So we really don't hear much about the Princeton endowment, 1:18:49.479 --> 1:18:53.280 which is probably a good thing because when you look, 1:18:53.400 --> 1:18:56.559 especially in the IVS, at some of the endowments that 1:18:56.680 --> 1:19:00.240 have been in the public eye, it's rarely because us 1:19:00.240 --> 1:19:03.920 they're shooting the lights out. Harvard went through a whole 1:19:04.960 --> 1:19:08.720 transition when they got rid of the people running a 1:19:08.760 --> 1:19:14.280 Harvard management company, and then they persistently wildly underperformed for 1:19:14.720 --> 1:19:19.800 a decade plus. And then obviously the Yale model under 1:19:19.840 --> 1:19:25.200 David Swinson was unique, and once Swinson began thinking about 1:19:25.200 --> 1:19:28.519 retiring that no longer was putting up the sort of 1:19:28.600 --> 1:19:33.160 numbers they had in prior decades. What is Princeton doing 1:19:34.080 --> 1:19:37.360 other than just keeping their head down and quietly doing 1:19:37.400 --> 1:19:38.040 what they're doing. 1:19:38.200 --> 1:19:42.720 Yeah, I mean, without maybe speaking specifically about what's going 1:19:42.720 --> 1:19:45.200 on underneath the hood at Princeton I'll just repeat a 1:19:45.200 --> 1:19:46.880 couple of things that have been out there in the 1:19:46.920 --> 1:19:49.360 public market. So first of all, you know, we had 1:19:49.400 --> 1:19:52.920 our longtime CIO Andy Golden, retire during the middle of 1:19:52.920 --> 1:19:56.879 twenty twenty four. Andy was a decipher of David Swinston. 1:19:56.920 --> 1:19:58.679 It worked him for a few years earlier in his career, 1:19:58.720 --> 1:20:02.760 had a spectacular almost thirty year run running Princo, and 1:20:02.840 --> 1:20:05.559 he's been replaced by a brand new CIO, Vince Tuwey, 1:20:05.600 --> 1:20:09.479 who came from MIT and had a very long career there. 1:20:09.640 --> 1:20:11.920 Mit has been among the best performing endowments as well, 1:20:12.280 --> 1:20:14.320 and the head of its endowment, Seth Alexander, is also 1:20:14.320 --> 1:20:17.240 a disciple of David Swinson. The second thing, which was 1:20:17.520 --> 1:20:21.519 came out in our recent President's Letter, which he publishes annually, 1:20:22.000 --> 1:20:23.839 is that you do have to look that endowment returns 1:20:23.840 --> 1:20:26.320 have come down over long periods of time, and that's 1:20:26.320 --> 1:20:28.439 something to do with Princeton or Yale or any of 1:20:28.439 --> 1:20:31.040 these August institutions. It has to do with you know 1:20:31.040 --> 1:20:33.760 what I mentioned earlier, capital chases returns and market's become 1:20:33.800 --> 1:20:37.320 efficient over time, and things that David or Andy were 1:20:37.320 --> 1:20:42.920 doing that were completely visionary in nineteen eighties nineteen nineties 1:20:42.960 --> 1:20:44.360 today are commonplace. 1:20:44.520 --> 1:20:47.840 Right, white space was wide open then and now it's 1:20:47.840 --> 1:20:48.760 well trust. 1:20:48.640 --> 1:20:52.120 Someone asked me, So I asked Tom Kepner. I said, Tom, 1:20:52.200 --> 1:20:56.559 is it true that David Swinson invented the term absolute return? 1:20:56.960 --> 1:21:00.120 And he said to me, it's completely true. And it 1:21:00.160 --> 1:21:02.240 was in the middle of the nineteen eighties, and David 1:21:02.240 --> 1:21:04.479 decided that was a much more gust word to use 1:21:04.560 --> 1:21:06.880 to describe strategies that people used to call as hedge 1:21:06.880 --> 1:21:09.120 fund strategies in that period of time. And so that 1:21:09.160 --> 1:21:11.120 literally just came from David Swinson's head, that term that 1:21:11.120 --> 1:21:15.160 we all used deerically today. I can't substantiate it, but 1:21:15.160 --> 1:21:17.519 I take Tom's word for it in terms of being 1:21:17.520 --> 1:21:20.360 a thing. And so you look at what these institutions 1:21:20.400 --> 1:21:24.120 created and now the incredible industry that's come from it, 1:21:23.240 --> 1:21:25.040 it's pretty staggering. 1:21:25.240 --> 1:21:27.720 Huh, really really amazing. All Right, I only have you 1:21:27.760 --> 1:21:29.840 for a limited amount of time. Let's jump to our 1:21:29.880 --> 1:21:35.160 favorite questions, starting with what are you doing to stay 1:21:35.479 --> 1:21:37.920 entertained when you're not at work? What are you watching 1:21:38.160 --> 1:21:38.839 or listening? 1:21:39.360 --> 1:21:43.000 So you know, I don't watch a lot of streamed 1:21:43.240 --> 1:21:45.840 content because I find when I'm at home. I want 1:21:45.840 --> 1:21:47.640 to vege, and so the good ways to do that 1:21:47.680 --> 1:21:50.880 are either watching sports or watching the news. Honestly, news 1:21:50.920 --> 1:21:53.439 is less good for vegging than sports. Probably. Two things 1:21:53.479 --> 1:21:56.080 I am looking forward to, though, are season three of 1:21:56.080 --> 1:21:59.479 White Lotus, which is just in the process of being out, 1:21:59.600 --> 1:22:01.960 and season three of Gilded Age, which I believe is 1:22:01.960 --> 1:22:04.040 going to come out this fall. Gilded Age, so Gilded 1:22:04.040 --> 1:22:08.240 Age is an HBO show, and it's basically about life 1:22:08.320 --> 1:22:10.920 in the eighteen eighties or eighteen nineties, so hence the 1:22:10.960 --> 1:22:13.639 Gilded Age of the United States. And there are characters 1:22:13.640 --> 1:22:17.680 that are based on Cornelius Vanderbilt or Jay Gould or 1:22:17.800 --> 1:22:20.200 some of the leading lights of the era. It's always 1:22:20.200 --> 1:22:23.000 an era. I found it very historically fascinating, and I 1:22:23.000 --> 1:22:24.760 think they've done a great job with the show. It's 1:22:24.800 --> 1:22:26.479 a great period piece. I mean, if you look around, 1:22:26.520 --> 1:22:30.400 there's more buildings left here or Newport or Albany from 1:22:30.400 --> 1:22:31.640 that era than you would think, so that the don 1:22:31.680 --> 1:22:35.559 a very good job of integrating a cgi with some 1:22:35.640 --> 1:22:37.519 of the older historic buildings. You know. 1:22:37.600 --> 1:22:41.240 I love the first season of Lotus. The second season 1:22:42.160 --> 1:22:45.200 was a little frustrating, especially with the way they wrapped 1:22:45.240 --> 1:22:47.760 it up I'm curious to see the direction they go 1:22:47.840 --> 1:22:51.439 in season three. I'm going to check out guilded Age. 1:22:51.479 --> 1:22:54.160 I'm assuming you've seen The Crown. 1:22:55.320 --> 1:22:57.160 My wife watched this, so I've seen portions of it. 1:22:57.240 --> 1:23:00.960 So I'll tell you it's just so good every episode. 1:23:01.520 --> 1:23:07.720 If you want that sort of historical run up, no 1:23:07.880 --> 1:23:12.720 stone left unturned their production. Like I am not a 1:23:12.920 --> 1:23:16.479 historical TV fan, and I got sucked into that. It 1:23:16.640 --> 1:23:21.200 really it's just spectacular from start to finish. Let's jump 1:23:21.240 --> 1:23:26.160 to your career and your mentors who helped shape your career. 1:23:26.960 --> 1:23:28.759 I have a feeling I have I know the names 1:23:28.800 --> 1:23:29.559 of a few of them. 1:23:30.000 --> 1:23:33.439 Yeah, you know, I go back further than the obvious, 1:23:33.880 --> 1:23:37.160 you know, Tom and Marvin in terms of starting. I mean, 1:23:37.200 --> 1:23:39.720 first of all, I'm very fortunate to come from a 1:23:39.760 --> 1:23:41.720 family where I had a few mentors as well. We 1:23:41.760 --> 1:23:44.240 had a family business which was started and founded by 1:23:44.280 --> 1:23:47.160 my grandfather and my father ultimately ran. It was book publishing, 1:23:47.240 --> 1:23:49.719 and like I mentioned before, I come from a family 1:23:49.760 --> 1:23:53.320 of book publishers and academics, and so it was good 1:23:53.360 --> 1:23:55.120 to sort of learn over the dinner table when I 1:23:55.120 --> 1:23:57.639 was a kid what was working and what wasn't working. 1:23:58.280 --> 1:24:01.519 My mother was very volunteer work when I was younger, 1:24:01.720 --> 1:24:03.479 and when I was thirteen, she said, you don't need 1:24:03.479 --> 1:24:05.680 me anymore, I'm gonna go back to work and had 1:24:05.720 --> 1:24:07.800 a twenty five year career as a senior administrator at 1:24:07.800 --> 1:24:10.400 our local community college. So that was very influential on 1:24:10.479 --> 1:24:13.040 me as well. Growing up. You know, I ran track 1:24:13.360 --> 1:24:16.640 both in high school and in college. I ran like 1:24:16.680 --> 1:24:17.840 half mile and cross country. 1:24:17.840 --> 1:24:20.000 Who was the half mile is the top? I ran 1:24:20.080 --> 1:24:22.439 the half mile in high school and the two mile 1:24:23.640 --> 1:24:26.439 relay and then we would do the three mile coast 1:24:26.520 --> 1:24:29.280 Why not? But the half mile is brutal. 1:24:29.640 --> 1:24:31.560 Because it's it's a sprint, right, So you're sprinting for 1:24:31.600 --> 1:24:34.920 two laps, right. But I had some great track coaches 1:24:34.920 --> 1:24:37.920 along the way that really helped me out as well. 1:24:38.000 --> 1:24:40.599 You know, I mentioned earlier that we had this amazing 1:24:40.600 --> 1:24:44.000 civics program at East Brunswick High School with his legendary 1:24:44.000 --> 1:24:46.680 teacher named John Kalamano, who was super helpful for me 1:24:47.120 --> 1:24:49.320 in that as well. And then in the working world. 1:24:49.360 --> 1:24:51.680 You know, I was very fortunate, like I learned a 1:24:51.720 --> 1:24:54.000 lot from both Tom and Marvin. They had very different 1:24:54.640 --> 1:24:56.920 styles and how they did things. But I also found 1:24:56.960 --> 1:25:00.280 people out there who's investing style I admired. I would 1:25:00.280 --> 1:25:01.599 try to figure out what they were doing and reverse 1:25:01.640 --> 1:25:03.920 engineer it, and so that's super helpful. I mean, some 1:25:03.960 --> 1:25:05.840 of that you can do just by reading. But there's 1:25:05.880 --> 1:25:08.200 other portions of it, like when you see the trades 1:25:08.240 --> 1:25:10.640 and you see the investments and like you're involved in them, 1:25:10.680 --> 1:25:12.519 and you see how someone did it better, and then 1:25:12.560 --> 1:25:14.320 you can figure out after the fact, like what you 1:25:14.360 --> 1:25:16.640 could do next time better. Like I just found that 1:25:16.720 --> 1:25:19.720 like super helpful. I'm a little bit further removed from 1:25:19.720 --> 1:25:21.439 that today. This is probably a little bit harder for 1:25:21.479 --> 1:25:22.800 me to do that, but that's some of the ways 1:25:22.840 --> 1:25:24.920 I really taught myself to invest over time. 1:25:25.439 --> 1:25:27.920 Really interesting. Let's talk about books. What are some of 1:25:28.000 --> 1:25:29.719 your favorites. What are you reading right now? 1:25:30.160 --> 1:25:32.840 Well, I'll start with the ones I'm reading right now, 1:25:32.840 --> 1:25:34.679 and then maybe i'll talk about some of the ones 1:25:34.760 --> 1:25:38.200 historically that I've quite enjoyed. So I'm rereading only The 1:25:38.200 --> 1:25:41.160 Paranoid Survive by Andy Grove. So you know, I mentioned 1:25:41.160 --> 1:25:43.560 earlier that I think our business in general is that 1:25:43.640 --> 1:25:45.840 a strategic inflection point in terms of what's going on 1:25:45.880 --> 1:25:48.160 and alternative asset management One of the main things he 1:25:48.200 --> 1:25:51.240 speaks about in that book is strategic inflection points and 1:25:51.280 --> 1:25:54.680 businesses and how you deal with that. I'm also part 1:25:54.720 --> 1:25:57.000 of the way through a book called Gambling, ma'am, which 1:25:57.080 --> 1:26:02.720 is about Masayoshi sun And by Lionel Barber, and that's 1:26:02.760 --> 1:26:05.680 a book where he's a fascinating character. I think a 1:26:05.680 --> 1:26:08.599 lot of people know about, you know, the last ten 1:26:08.640 --> 1:26:11.240 or fifteen years of Massa's career. I don't think that 1:26:11.280 --> 1:26:12.960 many people know about how he got there, all the 1:26:13.000 --> 1:26:15.040 times he had near misses with the whole thing could 1:26:15.040 --> 1:26:18.040 have blown up, or things along those lines. So that's 1:26:18.120 --> 1:26:22.000 very interesting to me. You know, early in my investing career, 1:26:22.479 --> 1:26:24.280 there are a number of books that are classics that 1:26:24.360 --> 1:26:28.240 I read. It's actually not The Intelligent Investor by Ben Graham. 1:26:28.280 --> 1:26:31.800 It's obviously a great book, but it's books like Extraordinary 1:26:31.880 --> 1:26:35.000 Popular Delusions in the Madness of Crowds by Charles McKay, 1:26:35.320 --> 1:26:39.479 or Reminiscence of a Stock Market Operator by Edlin Lefevre, 1:26:39.600 --> 1:26:43.000 which was a pseudonym for Jesse Livermore, who was a 1:26:43.000 --> 1:26:46.280 famous trader in the nineteen twenties and nineteen thirties, or 1:26:46.600 --> 1:26:49.800 Where Are the Customer Yachts by Fred Sweed, you know, 1:26:50.000 --> 1:26:52.000 very early in my career, Like, that's how I learned, 1:26:52.040 --> 1:26:54.439 even before I started a decay. That's how I learned 1:26:54.479 --> 1:26:56.800 was reading these books. And so even though other books 1:26:56.840 --> 1:26:58.479 maybe I haven't read in a little while, like they're 1:26:58.520 --> 1:27:00.519 all classics, I stole readily recommend. 1:27:01.200 --> 1:27:04.200 You know, it's funny. Bill Bernstein, who wrote The Four 1:27:04.240 --> 1:27:07.920 Pillars of Investing, has a new book out on the 1:27:07.960 --> 1:27:12.840 Delusions of Crowds. That's he's both an investor and a 1:27:12.880 --> 1:27:17.200 retired neurologist slash physician, and so he takes a very 1:27:18.880 --> 1:27:22.280 i want to say, almost medical evolutionary approach to looking 1:27:22.320 --> 1:27:25.080 at why people go mad in crowds. If you haven't 1:27:25.080 --> 1:27:26.879 seen that, it's kind of fascinating. 1:27:26.840 --> 1:27:27.720 I'll definitely check it out. 1:27:27.920 --> 1:27:31.680 I suspect you'd really appreciate that. Our final two questions, 1:27:32.200 --> 1:27:34.439 what sort of advice would you give to a recent 1:27:34.520 --> 1:27:39.679 college grad interested in a career in either opportunistic credit 1:27:39.920 --> 1:27:41.400 or investing generally. 1:27:41.760 --> 1:27:45.040 Well, I think both pieces of advice would apply to ball. 1:27:45.120 --> 1:27:48.439 So I'll share two. The first of which is I'm 1:27:48.439 --> 1:27:50.760 gonna share advice I got from a law professor I 1:27:50.760 --> 1:27:52.960 had of mine named John Quigley, who had been at 1:27:53.000 --> 1:27:56.959 Nasau Capital, which was Princeton's in house private equity organization 1:27:57.000 --> 1:27:59.080 in the nineteen ninety. So here's my professor in law school. 1:27:59.160 --> 1:28:01.240 When I was considering going to work at Davidson Kapner. 1:28:01.560 --> 1:28:03.840 What he said to me was the best way to 1:28:03.920 --> 1:28:06.240 learn how to invest is to actually invest. And so 1:28:06.360 --> 1:28:08.400 if you get a chance to go into an investment firm, 1:28:08.840 --> 1:28:10.880 take it. Don't worry about not having the training for it. 1:28:10.880 --> 1:28:13.400 Don't worry about having to do other things first. You know, 1:28:13.439 --> 1:28:14.920 I was torn early in my career or I got 1:28:14.960 --> 1:28:16.799 work on the cell side first and learn some stuff 1:28:16.800 --> 1:28:19.439 before I go into investing. And it was great advice. 1:28:19.520 --> 1:28:21.320 I mean, you know, we do hire a handful of 1:28:21.320 --> 1:28:24.280 people at a college every year at DK, and I 1:28:24.320 --> 1:28:26.680 think it's super great if you can start doing it 1:28:26.720 --> 1:28:28.000 as soon as you want to. If you know what 1:28:28.040 --> 1:28:29.280 you want to do, you should go do it right. 1:28:29.360 --> 1:28:32.120 And so that's piece of advice number one. Piece of 1:28:32.120 --> 1:28:36.320 advice number two I got from my post college roommate's mother, 1:28:36.880 --> 1:28:39.719 and my post college roomate ultimately followed the same advice, 1:28:39.720 --> 1:28:42.040 but it took them fifteen years. And the advice I 1:28:42.080 --> 1:28:44.000 got was, and I'm going to use the Goldman Sachs 1:28:44.080 --> 1:28:45.240 for this because what she said at the time, but 1:28:45.240 --> 1:28:46.680 you could apply a number of other firms to it. 1:28:46.680 --> 1:28:49.799 Today she said, don't go work at Goldman Sachs. Goldman 1:28:49.880 --> 1:28:51.400 Sachs is going to be a rat race to the 1:28:51.439 --> 1:28:53.400 top all the top smart people want to go work 1:28:53.400 --> 1:28:55.680 at Goldman Sacks. Figure out what's going to be the 1:28:55.720 --> 1:28:58.400 next Goldman Sacks and getting on the ground floor there instead. 1:28:59.000 --> 1:29:00.679 And I sort of got lucky and sort of felt 1:29:00.680 --> 1:29:01.840 like I did that with David Sinon Keouner. 1:29:02.840 --> 1:29:06.720 That's really really good advice. And our final question, what 1:29:06.760 --> 1:29:08.840 do you know about the world of fill in the 1:29:08.880 --> 1:29:13.720 blank distressed investing, alternatives private credit today? That might have 1:29:13.800 --> 1:29:16.120 been helpful twenty seven years or so ago when you 1:29:16.160 --> 1:29:17.400 first got started. 1:29:17.080 --> 1:29:20.519 Well, you know, looks. It's when you start a career 1:29:20.560 --> 1:29:23.960 at investing. I think by definition you start pretty broad 1:29:24.160 --> 1:29:25.880 and then you get no hour and hour like. You 1:29:25.880 --> 1:29:27.920 start with the premise that you want to invest, and 1:29:27.960 --> 1:29:30.240 then you ultimately find a firm and the firm usually 1:29:30.240 --> 1:29:31.800 has you in a strategy, and if you do a 1:29:31.800 --> 1:29:34.200 good job, you learn that strategy cold over a longer 1:29:34.200 --> 1:29:37.240 period of time, and what I'd say today. And this 1:29:37.360 --> 1:29:39.679 is you know, also colored by my experience on investment committees, 1:29:39.680 --> 1:29:42.040 but it's also just being a Davidson keptner. Is that 1:29:42.200 --> 1:29:45.280 you know, investing is a very broad universe. Things are interlinked. 1:29:45.560 --> 1:29:47.240 So for example, if you don't know what's going on 1:29:47.280 --> 1:29:49.880 with technology investing, you may not understand what's going on 1:29:49.880 --> 1:29:52.439 with oppetistic credit. Even though there are different things and 1:29:52.520 --> 1:29:54.640 you know you need different expertise to do well in 1:29:54.680 --> 1:29:57.120 each of them. And so it was something I didn't 1:29:57.160 --> 1:29:59.599 really think about early in my career. I started broad 1:29:59.600 --> 1:30:01.760 and then I got really narrow, and I've probably gotten 1:30:01.800 --> 1:30:04.240 broader as both I've gotten more senior and I've gotten 1:30:04.280 --> 1:30:06.799 more different types of experience in the investing world in general. 1:30:07.200 --> 1:30:09.639 But to some degree, you should always stay broad even 1:30:09.640 --> 1:30:11.560 if you're going narrow. So you know you're gonna have 1:30:11.600 --> 1:30:13.400 to go narrow to be successful in your career. There's 1:30:13.439 --> 1:30:15.400 very a few people who can do everything as an 1:30:15.400 --> 1:30:18.080 investor and be successful. But as you go narrow, like, 1:30:18.080 --> 1:30:19.960 don't lose sight of other asset classes and what's going 1:30:19.960 --> 1:30:21.560 on in the world, because you can get blinded to 1:30:21.600 --> 1:30:22.640 bigger trends if you did that. 1:30:23.280 --> 1:30:26.080 Really really really interesting. Tony, Thank you for being so 1:30:26.200 --> 1:30:29.959 generous with your time. We have been speaking with Tony Joseloff. 1:30:30.360 --> 1:30:34.679 He's Chief investment Officer and managing partner at Davidson Kempner, 1:30:35.280 --> 1:30:40.120 overseeing over thirty five billion dollars in assets. If you 1:30:40.280 --> 1:30:43.160 enjoy this conversation, check out any of the five hundred 1:30:43.200 --> 1:30:47.160 plus we've done over the past eleven years. You can 1:30:47.160 --> 1:30:51.439 find those at iTunes, Spotify, YouTube, wherever you get your 1:30:51.479 --> 1:30:54.479 favorite podcasts. And be sure and check out my new 1:30:54.520 --> 1:31:00.559 book coming March eighteenth, How Not to Invest the bad ideas, numbers, 1:31:00.600 --> 1:31:04.400 and behaviors that destroy wealth. I would be remiss if 1:31:04.400 --> 1:31:06.519 I did not thank the Cracked team that helps put 1:31:06.520 --> 1:31:11.040 these conversations together each week. John Wasserman is my audio engineer. 1:31:11.600 --> 1:31:15.920 Anna Luke is my producer. Sean Russo is my researcher. 1:31:16.320 --> 1:31:20.200 Sage Bauman is the head of podcasts at Bloomberg. I'm 1:31:20.240 --> 1:31:24.320 Barry Retolts. You've been listening to Master's in Business on 1:31:24.439 --> 1:31:29.680 Bloomberg Radio.