1 00:00:02,040 --> 00:00:09,600 Speaker 1: This is Master's in Business with Barry Ridholds on Bloomberg Radio. 2 00:00:09,240 --> 00:00:12,440 Speaker 2: This week on the podcast What Can I Say? Another 3 00:00:12,760 --> 00:00:17,200 Speaker 2: extra extra special guest, Arman Panosian is head of Performing 4 00:00:17,239 --> 00:00:20,919 Speaker 2: Credit at oak Tree Capital Management, where he works with 5 00:00:20,960 --> 00:00:25,040 Speaker 2: the likes of Bruce Karsh and Howard Marx. He is 6 00:00:25,160 --> 00:00:30,080 Speaker 2: also the incoming co CEO, a job he will take 7 00:00:30,120 --> 00:00:33,640 Speaker 2: the reins at in the first quarter of twenty twenty four, 8 00:00:33,800 --> 00:00:36,720 Speaker 2: helping to run oak Trees. I want to say it's 9 00:00:36,760 --> 00:00:40,680 Speaker 2: about one hundred and seventy nine billion dollars in client assets. 10 00:00:41,680 --> 00:00:45,360 Speaker 2: I found this to be just a masterclass in everything 11 00:00:45,400 --> 00:00:50,360 Speaker 2: you need to know about distressed credit, investing, private credit, 12 00:00:50,920 --> 00:00:55,840 Speaker 2: the role of the economy, the Fed interest rates, inflation 13 00:00:57,200 --> 00:01:01,520 Speaker 2: bottoms up, credit picking, and how to manage a firm 14 00:01:01,800 --> 00:01:07,280 Speaker 2: and a fund in light of just massive dislocations in 15 00:01:07,319 --> 00:01:12,360 Speaker 2: your space as well as the overall economy. You've probably 16 00:01:12,360 --> 00:01:16,760 Speaker 2: heard some aspects of this from the various interviews I've 17 00:01:16,760 --> 00:01:20,919 Speaker 2: done with Howard Marx talking about the distressed asset fund 18 00:01:20,959 --> 00:01:23,920 Speaker 2: they set up in two thousand and seven. That's very 19 00:01:24,000 --> 00:01:27,640 Speaker 2: much a top down view from what Howard Marx was 20 00:01:27,640 --> 00:01:30,000 Speaker 2: setting up. But here you have the guy who is 21 00:01:30,240 --> 00:01:34,319 Speaker 2: part of the team running the funds day to day, 22 00:01:34,680 --> 00:01:38,240 Speaker 2: right into the teeth of the collapse of the financial 23 00:01:39,440 --> 00:01:43,720 Speaker 2: markets in the Great Financial Crisis. There were days when 24 00:01:44,000 --> 00:01:47,240 Speaker 2: they were the only bidders for any type of fixed income, 25 00:01:47,720 --> 00:01:50,800 Speaker 2: putting one hundred million dollars or more to work each day. 26 00:01:51,320 --> 00:01:55,760 Speaker 2: It's really a fascinating discussion, a fascinating glimpse into history 27 00:01:56,240 --> 00:01:58,960 Speaker 2: as to what was going on during the financial crisis. Hey, 28 00:01:58,960 --> 00:02:02,400 Speaker 2: fast forward fifteen years, and now these guys are doing 29 00:02:02,440 --> 00:02:06,560 Speaker 2: the same thing in twenty twenty two, when fixed income 30 00:02:06,640 --> 00:02:10,480 Speaker 2: is down by double digits and there's a little bit 31 00:02:10,480 --> 00:02:13,520 Speaker 2: of panic in that space. These are the guys that 32 00:02:13,560 --> 00:02:16,200 Speaker 2: are on the other side of the trade looking to 33 00:02:16,560 --> 00:02:21,600 Speaker 2: pick up dollars for fifty cents, and very often they're 34 00:02:21,600 --> 00:02:24,840 Speaker 2: the only bidder when everybody else is kind of freaked 35 00:02:24,840 --> 00:02:27,920 Speaker 2: out about what's going on. I found this conversation to 36 00:02:28,000 --> 00:02:32,040 Speaker 2: be absolutely intriguing and fascinating, and I think you will 37 00:02:32,080 --> 00:02:36,080 Speaker 2: as well. With no further ado, my interview of the 38 00:02:36,120 --> 00:02:41,160 Speaker 2: incoming co CEO of oak Tree Capital Management, Arman Panosian. 39 00:02:41,880 --> 00:02:45,200 Speaker 1: Yeah, thanks, Barry. So when I was in graduate school, 40 00:02:45,240 --> 00:02:49,080 Speaker 1: I thought about all the different types of investing or 41 00:02:49,080 --> 00:02:51,320 Speaker 1: advisory work I could do, and I, you know, really 42 00:02:51,320 --> 00:02:55,760 Speaker 1: triangulated on distress debt being the most interesting part of 43 00:02:55,800 --> 00:02:58,240 Speaker 1: the of the markets where I could participate in. Pequot 44 00:02:58,400 --> 00:03:04,600 Speaker 1: Capital had a group based in Los Angeles that had 45 00:03:04,600 --> 00:03:10,560 Speaker 1: a long and experienced team that was investing in distress 46 00:03:10,639 --> 00:03:13,840 Speaker 1: debt and really kept separating apart from what the rest 47 00:03:13,840 --> 00:03:15,880 Speaker 1: of the hedge fund at Peaquat was doing. But I 48 00:03:15,880 --> 00:03:20,920 Speaker 1: did meet Art Samberg, really, I would say, a great 49 00:03:20,960 --> 00:03:24,040 Speaker 1: person to work for. But I really learned a lot 50 00:03:24,160 --> 00:03:27,239 Speaker 1: from the team doing the distressed debt investing, Rob Webster 51 00:03:27,280 --> 00:03:30,560 Speaker 1: and Paul Mellinger in Los Angeles that really did a 52 00:03:30,560 --> 00:03:33,160 Speaker 1: lot in the small and medium size distressed for control space. 53 00:03:33,240 --> 00:03:35,440 Speaker 2: Yeah, Samberg is a fascinating guy. I had him on 54 00:03:35,480 --> 00:03:38,600 Speaker 2: the show in twenty fifteen and the thing that was 55 00:03:38,640 --> 00:03:44,640 Speaker 2: so astonishing seventeen point eight percent annual returns NETA fees 56 00:03:45,240 --> 00:03:49,080 Speaker 2: and that's from nineteen eighty seven to the mid twenty tens. 57 00:03:49,560 --> 00:03:52,800 Speaker 2: Just an incredible run. And he started I think his 58 00:03:52,880 --> 00:03:56,280 Speaker 2: first year drodown was twenty five twenty six percent right 59 00:03:56,320 --> 00:03:59,640 Speaker 2: into the eighty seven crash. Just an amazing track record. 60 00:03:59,880 --> 00:04:03,400 Speaker 2: Was who like working with Art Sandberg? And and some 61 00:04:03,480 --> 00:04:06,600 Speaker 2: of the other really you know, storied people who work there. 62 00:04:06,680 --> 00:04:08,680 Speaker 1: Yeah, it was he had a very strong team around 63 00:04:08,720 --> 00:04:10,800 Speaker 1: him on the equity side. You know, they were based 64 00:04:10,840 --> 00:04:14,920 Speaker 1: in Connecticut and and doing uh, you know, I would 65 00:04:14,960 --> 00:04:18,279 Speaker 1: say investing that was separate apart from the distress side. 66 00:04:18,680 --> 00:04:21,479 Speaker 1: We were really focused on the distress side and small 67 00:04:21,520 --> 00:04:25,600 Speaker 1: and medium sized businesses buying their debt, looking to restructure them, 68 00:04:25,680 --> 00:04:31,200 Speaker 1: taking over control, making some you know, swift decisions around 69 00:04:31,240 --> 00:04:34,919 Speaker 1: acquisitions or divestitures, and and then selling those businesses. So 70 00:04:35,160 --> 00:04:36,640 Speaker 1: we were kind of kept in a little bit of 71 00:04:36,680 --> 00:04:38,800 Speaker 1: a bubble on the distress side, and I think we 72 00:04:38,800 --> 00:04:41,880 Speaker 1: were always kind of the the negative group within within 73 00:04:41,920 --> 00:04:45,240 Speaker 1: an organization that was quite equity focused and always looking 74 00:04:45,240 --> 00:04:48,280 Speaker 1: for the upside opportunity. So it's kind of an interesting 75 00:04:48,279 --> 00:04:52,440 Speaker 1: dichotomy to be, uh, a distressed investor in the context 76 00:04:52,480 --> 00:04:55,080 Speaker 1: of an equity manager that that was always looking for, 77 00:04:55,440 --> 00:04:58,160 Speaker 1: you know, looking for the glass half full rather than 78 00:04:58,160 --> 00:04:59,000 Speaker 1: the lass half empty. 79 00:04:59,160 --> 00:05:02,320 Speaker 2: Well, well, you know, debt investors, they just want their 80 00:05:02,320 --> 00:05:04,760 Speaker 2: money back. It's a very different philosophy. So now let's 81 00:05:04,800 --> 00:05:08,840 Speaker 2: talk a little bit about oak Tree. Your timing was fortuitous. 82 00:05:08,880 --> 00:05:11,400 Speaker 2: You join in two thousand and seven. Tell us a 83 00:05:11,440 --> 00:05:15,320 Speaker 2: little bit about that era. What was it like between 84 00:05:15,520 --> 00:05:19,120 Speaker 2: the time when housing had already rolled over, but before 85 00:05:19,320 --> 00:05:21,040 Speaker 2: stocks peaked and crashed. 86 00:05:21,120 --> 00:05:23,200 Speaker 1: Yeah, I remember when I bought my first house in 87 00:05:23,240 --> 00:05:27,520 Speaker 1: two thousand and six. They all I was asked was 88 00:05:27,680 --> 00:05:31,320 Speaker 1: if I intended to repay the debt, and I didn't 89 00:05:31,360 --> 00:05:35,800 Speaker 1: have to show any materials about my income or my 90 00:05:35,880 --> 00:05:40,719 Speaker 1: credit capacity. It was purely if I intended to repay, 91 00:05:40,800 --> 00:05:43,040 Speaker 1: which you know, if I knew how to short it 92 00:05:43,080 --> 00:05:45,480 Speaker 1: back then, I would have immediately, because I'm pretty sure 93 00:05:45,480 --> 00:05:47,440 Speaker 1: I was not a good credit at that point in time. 94 00:05:47,560 --> 00:05:51,320 Speaker 1: But fast forward to June of two thousand and seven. 95 00:05:52,120 --> 00:05:56,560 Speaker 1: You know, oak Tree in the distress debt landscape is really, 96 00:05:57,640 --> 00:06:01,440 Speaker 1: you know, second to none. And when Howard Marx and 97 00:06:01,440 --> 00:06:05,600 Speaker 1: Bruce Karsh saw these cracks that that, you know, I 98 00:06:05,680 --> 00:06:07,839 Speaker 1: think they were early to see it in the corporate 99 00:06:07,880 --> 00:06:11,000 Speaker 1: credit markets, they decided to go raise a big fund 100 00:06:11,240 --> 00:06:14,320 Speaker 1: and they had a lot of conviction to do that 101 00:06:14,440 --> 00:06:17,640 Speaker 1: and stepped up with the clients to raise it. And 102 00:06:17,720 --> 00:06:20,800 Speaker 1: I was fortunate to find a seat in that group 103 00:06:21,279 --> 00:06:26,640 Speaker 1: and invested, you know, very steadily in two thousand and seven, 104 00:06:26,760 --> 00:06:28,880 Speaker 1: not not terribly busy in two thousand and seven, to 105 00:06:28,880 --> 00:06:31,039 Speaker 1: be honest, But in two thousand and eight, two thousand 106 00:06:31,080 --> 00:06:34,640 Speaker 1: and nine, ten, it was by far the busiest time 107 00:06:34,680 --> 00:06:37,920 Speaker 1: in my career in investing. I'm sure Howard mentioned this 108 00:06:37,960 --> 00:06:39,839 Speaker 1: to you, but you know, after the collapse of Lehman, 109 00:06:40,880 --> 00:06:44,000 Speaker 1: for many months, you know, we were buying hundreds of 110 00:06:44,080 --> 00:06:48,279 Speaker 1: millions of dollars of publicly traded debt globally, and frankly, 111 00:06:48,320 --> 00:06:50,640 Speaker 1: it took a lot of conviction to do so because 112 00:06:50,680 --> 00:06:53,280 Speaker 1: everything we bought was down five points a week later, 113 00:06:53,800 --> 00:06:55,760 Speaker 1: and so there were there were more than a couple 114 00:06:55,800 --> 00:06:57,560 Speaker 1: of nights where I slept under my desk wondering if 115 00:06:57,560 --> 00:06:58,560 Speaker 1: I had a job in the morning. 116 00:06:58,880 --> 00:07:01,120 Speaker 2: And when you say you would buy hundreds of millions 117 00:07:01,160 --> 00:07:04,880 Speaker 2: of dollars worth of publicly traded debt, that's every day. Yeah, 118 00:07:05,040 --> 00:07:08,240 Speaker 2: every day. Isn't like one hundred million dollar purchase daily, 119 00:07:08,279 --> 00:07:11,000 Speaker 2: You're going out. Because I recall Howard telling the story 120 00:07:11,480 --> 00:07:14,400 Speaker 2: that they wanted to launch this fund in the beginning 121 00:07:14,400 --> 00:07:18,480 Speaker 2: of seven and the target to raise assets was they 122 00:07:18,560 --> 00:07:23,080 Speaker 2: wanted three billion. They ended up with fourteen billion. Sometimes 123 00:07:23,120 --> 00:07:26,800 Speaker 2: size gets in the way of performance. Not in this case. 124 00:07:26,880 --> 00:07:30,520 Speaker 2: It sounds like the timing was perfect, the sector was perfect. 125 00:07:31,040 --> 00:07:34,280 Speaker 2: What was it like having to deal with all that 126 00:07:34,400 --> 00:07:37,040 Speaker 2: capital when when you're watching the world fall apart? 127 00:07:37,200 --> 00:07:39,600 Speaker 1: Yeah, it was interesting because with the way we structured 128 00:07:39,640 --> 00:07:43,520 Speaker 1: that particular fund, it was a smaller A fund, and 129 00:07:43,560 --> 00:07:46,360 Speaker 1: then we had a very very large B fund that 130 00:07:46,520 --> 00:07:49,920 Speaker 1: was not it wasn't necessarily the case that it would 131 00:07:49,920 --> 00:07:52,280 Speaker 1: be drawn. It was it will be drawn if the 132 00:07:52,320 --> 00:07:55,440 Speaker 1: opportunity presents itself. So the A fund, if I recall correctly, 133 00:07:55,480 --> 00:07:57,760 Speaker 1: was about three and a half billion. The B fund 134 00:07:57,840 --> 00:07:58,880 Speaker 1: was over ten billion. 135 00:07:58,920 --> 00:07:59,240 Speaker 2: Wow. 136 00:07:59,520 --> 00:08:02,679 Speaker 1: And so when I started, we were investing the A fund. 137 00:08:02,760 --> 00:08:04,800 Speaker 1: You know, the cracks were there, but they weren't wide. 138 00:08:05,360 --> 00:08:09,960 Speaker 1: And then very soon after, you know, bear Stearns fails, 139 00:08:10,240 --> 00:08:13,920 Speaker 1: Lehman Brothers fails. The cracks were massive. And there was 140 00:08:14,000 --> 00:08:16,560 Speaker 1: so much FORES selling from the trading dusts at the banks. 141 00:08:16,920 --> 00:08:19,640 Speaker 1: There was so much FORES selling from the something called SIVs, 142 00:08:19,680 --> 00:08:22,960 Speaker 1: the special investment vehicles that had mismatched assets to liabilities. 143 00:08:23,720 --> 00:08:27,600 Speaker 1: Obviously the hedge funds had redemptions. It often felt like 144 00:08:27,680 --> 00:08:29,960 Speaker 1: we were one of very few or maybe the only 145 00:08:30,000 --> 00:08:33,600 Speaker 1: one buying in the market, which took a lot of fortitude, 146 00:08:33,600 --> 00:08:38,120 Speaker 1: and I remember Howard especially said, you know, because everyone 147 00:08:38,160 --> 00:08:40,599 Speaker 1: was scared that our client's capital was at risk and 148 00:08:41,120 --> 00:08:43,199 Speaker 1: our jobs were at risk, and the future of the 149 00:08:44,280 --> 00:08:46,880 Speaker 1: world as we know it was at risk. But Howard said, 150 00:08:47,040 --> 00:08:50,920 Speaker 1: you know, we are paid to catch falling knives. That's 151 00:08:50,920 --> 00:08:53,679 Speaker 1: our job. We need to do our work and make 152 00:08:53,720 --> 00:08:57,120 Speaker 1: sure that we've done a very good amount of analysis 153 00:08:57,160 --> 00:08:59,640 Speaker 1: to be comfortable with owning a business through a cycle 154 00:08:59,679 --> 00:09:02,439 Speaker 1: at the creation value that we're investing at, and if 155 00:09:02,440 --> 00:09:04,120 Speaker 1: we do our jobs right, that this will all turn 156 00:09:04,160 --> 00:09:07,320 Speaker 1: out okay. And it did. I mean, I think we 157 00:09:07,320 --> 00:09:12,199 Speaker 1: we did deliver a strong performance during that period of time. 158 00:09:12,960 --> 00:09:15,360 Speaker 1: We returned a lot of capital. I think most importantly, 159 00:09:15,360 --> 00:09:18,640 Speaker 1: our clients appreciated the return of capital. And we were 160 00:09:18,679 --> 00:09:20,520 Speaker 1: on a footing that if we wanted to, we could 161 00:09:20,520 --> 00:09:23,000 Speaker 1: have raised another fourteen billion dollars right afterwards if we 162 00:09:23,040 --> 00:09:26,040 Speaker 1: wanted to, but you know, we decided not to. We 163 00:09:26,120 --> 00:09:28,720 Speaker 1: decided that the opportunity set was less attractive coming out 164 00:09:28,760 --> 00:09:31,640 Speaker 1: of the global financial crisis, and we raised a fund 165 00:09:31,640 --> 00:09:33,520 Speaker 1: that was less than half the size of the prior 166 00:09:33,600 --> 00:09:36,680 Speaker 1: fund because we thought that, you know, just because we 167 00:09:36,720 --> 00:09:39,480 Speaker 1: could raise capital doesn't mean that we should raise capital. 168 00:09:39,559 --> 00:09:41,880 Speaker 2: I recall reading and I know you can't say this, 169 00:09:42,040 --> 00:09:45,280 Speaker 2: but I recall reading that fund return something like nineteen 170 00:09:45,320 --> 00:09:50,000 Speaker 2: percent a year, some just astounding number. I'm curious, when 171 00:09:50,080 --> 00:09:52,640 Speaker 2: you're in the thick of it and it feels like 172 00:09:52,679 --> 00:09:56,280 Speaker 2: the world is going upside down, do clients start to 173 00:09:56,280 --> 00:09:58,439 Speaker 2: get cold feet? To people who committed to the b 174 00:09:58,640 --> 00:10:01,280 Speaker 2: fund say, Hey, you guys really want to be out 175 00:10:01,280 --> 00:10:04,320 Speaker 2: here buying this as the world ends. What was the 176 00:10:04,400 --> 00:10:06,240 Speaker 2: experience like in the midst of that. 177 00:10:06,520 --> 00:10:09,000 Speaker 1: Yeah, I mean, I think oak Tree benefits from having 178 00:10:09,160 --> 00:10:12,880 Speaker 1: really great clients and long history. And you know, Howard 179 00:10:12,960 --> 00:10:17,200 Speaker 1: started investing in high healed bonds in the seventies. Howard 180 00:10:17,360 --> 00:10:21,080 Speaker 1: and Bruce and Sheldonstone and their other partners began working 181 00:10:21,080 --> 00:10:24,040 Speaker 1: together in nineteen eighty five and in nineteen eighty eight, 182 00:10:24,040 --> 00:10:27,960 Speaker 1: and distressed that we had already delivered on promises that 183 00:10:28,000 --> 00:10:30,240 Speaker 1: we had made to clients around the type of investing 184 00:10:30,280 --> 00:10:32,360 Speaker 1: we would do and the responsibility that we would take 185 00:10:32,400 --> 00:10:36,040 Speaker 1: in investing in their capital. So they knew that of 186 00:10:36,120 --> 00:10:38,960 Speaker 1: all the things, of all the problems that they may 187 00:10:39,000 --> 00:10:41,080 Speaker 1: have in their book, we were probably the least of 188 00:10:41,120 --> 00:10:44,199 Speaker 1: their problems, and so they were happy that we had 189 00:10:44,400 --> 00:10:48,120 Speaker 1: the We provided the countercyclical exposure that they needed at 190 00:10:48,160 --> 00:10:50,880 Speaker 1: that time, So we really didn't have any clients that 191 00:10:50,880 --> 00:10:53,560 Speaker 1: were fleeing. We certainly had clients that were nervous, and 192 00:10:53,559 --> 00:10:55,400 Speaker 1: we're calling us and saying, look, I mean, what's going 193 00:10:55,440 --> 00:10:57,880 Speaker 1: to happen in my private equity book. I mean, if 194 00:10:57,960 --> 00:11:00,719 Speaker 1: you're having there, I mean, if you're by debt in 195 00:11:02,480 --> 00:11:05,880 Speaker 1: you name it company at twenty cents to sixty cents 196 00:11:05,920 --> 00:11:08,640 Speaker 1: and they're owned by you know, marquee private equity firms, 197 00:11:08,679 --> 00:11:11,960 Speaker 1: what's going to happen with that? And we feeled a 198 00:11:11,960 --> 00:11:14,360 Speaker 1: lot of phone calls. I think the most nervous we 199 00:11:14,480 --> 00:11:17,520 Speaker 1: became was when the banks started failing, and when we 200 00:11:17,520 --> 00:11:22,040 Speaker 1: were concerned, or we became concerned that client capital held 201 00:11:23,360 --> 00:11:27,800 Speaker 1: in those banks, you know, prime brokerages and such. We 202 00:11:27,800 --> 00:11:30,240 Speaker 1: were just worried at some point that that could become 203 00:11:30,240 --> 00:11:33,160 Speaker 1: a general andsecured claim in the bankruptcies of a cascading 204 00:11:33,200 --> 00:11:35,800 Speaker 1: set of banks. And that was probably the peak of 205 00:11:35,840 --> 00:11:38,880 Speaker 1: when we became most nervous. But again, if that were 206 00:11:38,880 --> 00:11:41,960 Speaker 1: to happen, If that had happened, we would have probably 207 00:11:41,960 --> 00:11:47,160 Speaker 1: been the least of the worries of politicians, diplomats, investors. 208 00:11:47,880 --> 00:11:51,440 Speaker 2: But even that you got so first, you guys are disciplined, 209 00:11:51,520 --> 00:11:54,520 Speaker 2: you're structured, you're not cowboys. That had to make people 210 00:11:54,600 --> 00:11:58,640 Speaker 2: feel pretty comfortable. In second, even those circumstances, that's a 211 00:11:58,679 --> 00:12:02,320 Speaker 2: Custoonian relationship. But prime brokers, it's not an asset that 212 00:12:02,400 --> 00:12:05,840 Speaker 2: other creditors can go after. So if that's the worst concern, 213 00:12:06,520 --> 00:12:09,240 Speaker 2: you guys just had the courage of your conviction to 214 00:12:09,320 --> 00:12:11,000 Speaker 2: be in the right place at the right time, with 215 00:12:11,040 --> 00:12:14,400 Speaker 2: the right firepower. I had no idea that you were 216 00:12:14,679 --> 00:12:18,079 Speaker 2: one of, if not the only ones as buyers throughout 217 00:12:18,120 --> 00:12:21,080 Speaker 2: that I can't imagine what it would have been like 218 00:12:21,600 --> 00:12:23,800 Speaker 2: if you guys weren't there. There would have been no bid. 219 00:12:23,960 --> 00:12:27,920 Speaker 1: Yeah, it would There were times in certain companies that 220 00:12:28,160 --> 00:12:31,800 Speaker 1: it really did feel like we were alone in a room. 221 00:12:32,360 --> 00:12:35,079 Speaker 1: And and you know, the benefit of hindsight, It was 222 00:12:35,120 --> 00:12:37,320 Speaker 1: a great time to invest, It was a great time 223 00:12:37,360 --> 00:12:40,960 Speaker 1: to learn. I learned a lot about what it meant 224 00:12:40,960 --> 00:12:45,240 Speaker 1: to have conviction when when others didn't, and also how 225 00:12:45,280 --> 00:12:49,360 Speaker 1: to how to navigate or how to how to orchestrate 226 00:12:49,400 --> 00:12:53,360 Speaker 1: your organization to withstand that type of pressure. And I 227 00:12:53,400 --> 00:12:56,520 Speaker 1: think Howard and Bruce especially did a great job in 228 00:12:57,480 --> 00:13:00,520 Speaker 1: navigating oak Tree to not lose itself and to not 229 00:13:00,559 --> 00:13:02,680 Speaker 1: lose its stripes. When it was easy to do so, 230 00:13:02,720 --> 00:13:04,920 Speaker 1: it was easy to become nervous and unhinged. 231 00:13:04,640 --> 00:13:08,600 Speaker 2: To say the very least. So fast forward fifteen years later, 232 00:13:09,000 --> 00:13:12,560 Speaker 2: you're now incoming CEO at oak Tree, and earlier this 233 00:13:12,640 --> 00:13:16,840 Speaker 2: year you said something that caught my attention quote, it's 234 00:13:16,840 --> 00:13:19,760 Speaker 2: a very exciting time to be in the credit markets. 235 00:13:20,200 --> 00:13:23,120 Speaker 2: Tell us about what's going on today that makes it 236 00:13:23,160 --> 00:13:23,800 Speaker 2: so interesting. 237 00:13:23,960 --> 00:13:27,360 Speaker 1: Yeah, there's a lot of dislocation today which has been 238 00:13:27,400 --> 00:13:30,839 Speaker 1: created by a rapid increase in rates, as well as 239 00:13:30,840 --> 00:13:34,319 Speaker 1: some cracks in the economy, especially around borrowers that put 240 00:13:34,360 --> 00:13:37,800 Speaker 1: together capital structures when money was easier to be had, 241 00:13:38,200 --> 00:13:42,840 Speaker 1: when rates were lower, when liquidity was high, when valuation 242 00:13:42,960 --> 00:13:45,920 Speaker 1: multiples were stable to rising, it was easy to make 243 00:13:46,000 --> 00:13:49,440 Speaker 1: money and easy to deploy capital. And I think a 244 00:13:49,440 --> 00:13:53,560 Speaker 1: lot of investors and lenders and really lost their way 245 00:13:54,840 --> 00:13:58,079 Speaker 1: and agreed to terms and conditions that under today's market 246 00:13:58,160 --> 00:14:01,839 Speaker 1: environment would not be acceptable. Levels of leverage that would 247 00:14:01,840 --> 00:14:07,520 Speaker 1: not work. And as a result, there is a condition 248 00:14:07,559 --> 00:14:10,960 Speaker 1: where there's risks and opportunities in the current market. And 249 00:14:10,960 --> 00:14:12,920 Speaker 1: if you've done a good job of avoiding the risks. 250 00:14:13,120 --> 00:14:16,040 Speaker 1: The opportunities are plentiful. What are those risks? The risks 251 00:14:16,080 --> 00:14:19,880 Speaker 1: are older vintage transactions that put had just too much 252 00:14:19,920 --> 00:14:23,120 Speaker 1: debt when rates were low. Now they're suffering from high 253 00:14:23,160 --> 00:14:25,960 Speaker 1: rates because they have floating rate liabilities that they never hedged. 254 00:14:26,360 --> 00:14:28,400 Speaker 1: And so there's a set of investors out there that 255 00:14:28,440 --> 00:14:32,200 Speaker 1: have that exposure and are challenged. The opportunities are obvious. 256 00:14:32,240 --> 00:14:36,000 Speaker 1: We're now lending on a private loan basis to very 257 00:14:36,080 --> 00:14:38,760 Speaker 1: large companies that are being bought out by private equity firms, 258 00:14:39,120 --> 00:14:42,200 Speaker 1: lending them at eleven to thirteen percent for first lean debt. 259 00:14:42,520 --> 00:14:45,080 Speaker 1: It's been a long time since we've seen something like that, 260 00:14:46,240 --> 00:14:49,960 Speaker 1: well over six seven eight years. And the equity checks 261 00:14:50,000 --> 00:14:52,760 Speaker 1: being written by these private equity firms are larger than 262 00:14:52,760 --> 00:14:55,440 Speaker 1: they've ever been as well, greater than fifty percent usually 263 00:14:55,800 --> 00:14:58,920 Speaker 1: of the enterprise value of the transaction that they're taking on. 264 00:14:59,200 --> 00:15:02,440 Speaker 2: That's big. So let's talk about some of those legacy 265 00:15:02,520 --> 00:15:07,040 Speaker 2: portfolio issues. Obviously, when rates were near zero and money 266 00:15:07,160 --> 00:15:12,440 Speaker 2: was cheap or free, a lot of people refinanced. Did 267 00:15:12,480 --> 00:15:16,320 Speaker 2: they refinance on a floating rate as opposed to locking in? 268 00:15:17,240 --> 00:15:19,880 Speaker 2: I know not everybody gets to do a billion dollar 269 00:15:19,920 --> 00:15:24,160 Speaker 2: deal with a thirty year fixed mortgage. But when rates 270 00:15:24,160 --> 00:15:28,440 Speaker 2: were low, you would have thought most companies would try 271 00:15:28,480 --> 00:15:32,800 Speaker 2: and refi their debt at a fixed rate. You're suggesting 272 00:15:32,840 --> 00:15:33,880 Speaker 2: a lot of that didn't happen. 273 00:15:34,080 --> 00:15:37,720 Speaker 1: Yeah, the private equity owned businesses and private equity owns 274 00:15:37,800 --> 00:15:41,480 Speaker 1: private equity sponsors prefer floating rate debt. The reason they 275 00:15:41,520 --> 00:15:44,480 Speaker 1: preferred is generally speaking, floating rate debt does not have 276 00:15:44,560 --> 00:15:47,840 Speaker 1: call protection, and so as the markets over the last 277 00:15:47,880 --> 00:15:50,160 Speaker 1: ten years just continued to tighten every year or every 278 00:15:50,160 --> 00:15:54,120 Speaker 1: other year, having non call debt was problematic. I mean 279 00:15:54,120 --> 00:15:56,200 Speaker 1: if you had if you had call protection, then your 280 00:15:56,560 --> 00:15:59,440 Speaker 1: cost of refinancing that debt would be onerous. So private 281 00:15:59,440 --> 00:16:02,320 Speaker 1: equity firms we're taking advantage of the tightening market conditions 282 00:16:02,320 --> 00:16:05,800 Speaker 1: by taking on floating rate debt, and they decided not 283 00:16:05,960 --> 00:16:09,200 Speaker 1: to hedge with enough frequency. About a third of the debt, 284 00:16:09,240 --> 00:16:11,120 Speaker 1: based on our estimation, about a third of the debt 285 00:16:11,120 --> 00:16:13,080 Speaker 1: that's floating rate out there has been hedged in some 286 00:16:13,480 --> 00:16:16,560 Speaker 1: form or fashion affixed. But that's hundreds of billions of 287 00:16:16,600 --> 00:16:20,920 Speaker 1: dollars that is completely floating and livear has gone from 288 00:16:20,920 --> 00:16:24,040 Speaker 1: twenty five basis points to now converted to SOFA at 289 00:16:24,040 --> 00:16:27,960 Speaker 1: over five percent, So you have almost a doubling of 290 00:16:28,000 --> 00:16:31,600 Speaker 1: the interest coupon paid by some of these businesses against 291 00:16:31,640 --> 00:16:34,320 Speaker 1: the backdrop of COVID nineteen, inflation and some of the 292 00:16:34,360 --> 00:16:37,760 Speaker 1: economic pressures that come with those factors. 293 00:16:37,600 --> 00:16:42,040 Speaker 2: And you mentioned some of the new debt Thatt's out there. 294 00:16:42,400 --> 00:16:45,640 Speaker 2: If SOFUR is five plus percent, what do the private 295 00:16:45,680 --> 00:16:50,440 Speaker 2: credit markets look like for a reasonable borrower, a reasonable 296 00:16:50,480 --> 00:16:52,200 Speaker 2: corporate borrower, you. 297 00:16:52,160 --> 00:16:54,800 Speaker 1: Know, for a private equity owned company or a private 298 00:16:54,800 --> 00:16:59,120 Speaker 1: equity sponsor LBO. What we're seeing typically is fifty to 299 00:16:59,160 --> 00:17:03,040 Speaker 1: seventy percent equity checks. We're seeing leverage between four and 300 00:17:03,040 --> 00:17:05,760 Speaker 1: a half and as much as six times TIBITDA, which 301 00:17:05,800 --> 00:17:07,959 Speaker 1: which is a little on the high side. But the 302 00:17:08,040 --> 00:17:10,280 Speaker 1: multiples that the private equity firms are paying for some 303 00:17:10,320 --> 00:17:13,040 Speaker 1: of the larger businesses are still quite high. It's still 304 00:17:13,040 --> 00:17:17,080 Speaker 1: in the double digits. But the good news, though, is 305 00:17:17,080 --> 00:17:22,560 Speaker 1: that with so much of the risks known, the economic risks, 306 00:17:22,560 --> 00:17:25,880 Speaker 1: the high cost of borrowing, the private equity firms as 307 00:17:25,960 --> 00:17:29,000 Speaker 1: well as lenders, are underwriting to a stress case scenario 308 00:17:29,560 --> 00:17:33,000 Speaker 1: under which the company will continue to cash flow even 309 00:17:33,000 --> 00:17:36,280 Speaker 1: if things deteriorate from here. So it's probably the most 310 00:17:36,480 --> 00:17:39,919 Speaker 1: you know, well telegraphed recession in history. You know, if 311 00:17:40,160 --> 00:17:42,560 Speaker 1: the recession does occur next year, I think everybody, nobody 312 00:17:42,600 --> 00:17:45,760 Speaker 1: will be surprised if one does occur, and so everyone 313 00:17:45,840 --> 00:17:49,240 Speaker 1: is underwriting as if that is a certainty. So credit 314 00:17:49,359 --> 00:17:52,159 Speaker 1: quality as a result is quite high, the returns are 315 00:17:52,240 --> 00:17:55,280 Speaker 1: quite high, and the loan to values are quite low, 316 00:17:55,560 --> 00:17:58,400 Speaker 1: as evidenced by a very large equity check from these 317 00:17:58,440 --> 00:18:01,400 Speaker 1: from these well healed private equity sponsors. 318 00:18:01,440 --> 00:18:05,320 Speaker 2: So obviously not risk lists, but pretty low risk relative 319 00:18:05,320 --> 00:18:08,240 Speaker 2: to the high yields and high returns that that sector 320 00:18:08,320 --> 00:18:08,840 Speaker 2: is looking at. 321 00:18:08,960 --> 00:18:12,840 Speaker 1: That's right, And you don't need to kind of bend 322 00:18:12,920 --> 00:18:16,600 Speaker 1: and change your stripes and invest in cyclical businesses to 323 00:18:16,680 --> 00:18:19,760 Speaker 1: get that additional return. You can invest in good companies 324 00:18:20,119 --> 00:18:23,919 Speaker 1: that are you know, have very low cyclicality, could be 325 00:18:24,040 --> 00:18:27,040 Speaker 1: very stable from a cash flow generation perspective through a cycle. 326 00:18:27,240 --> 00:18:31,760 Speaker 2: Quite fascinating. Let's now talk about what's going on in 327 00:18:31,800 --> 00:18:36,399 Speaker 2: the current credit markets. You describe what you said is 328 00:18:36,720 --> 00:18:39,480 Speaker 2: a sea change in markets. Tell us about that. 329 00:18:40,000 --> 00:18:45,119 Speaker 1: Yeah, it's a very different market environment today than just 330 00:18:45,240 --> 00:18:49,760 Speaker 1: two years ago, you know, following the global financial crisis, 331 00:18:50,560 --> 00:18:54,159 Speaker 1: we had economic stimulus. We had monetary policy that was 332 00:18:54,280 --> 00:18:59,160 Speaker 1: quite accommodating easy access to capital liquidity to help bridge 333 00:18:59,240 --> 00:19:01,520 Speaker 1: the problems of the global financial crisis to a new day, 334 00:19:01,960 --> 00:19:06,400 Speaker 1: and that lasted until twenty nineteen until the COVID nineteen pandemic, 335 00:19:07,640 --> 00:19:11,159 Speaker 1: and even after the pandemic. With this there was obviously 336 00:19:11,200 --> 00:19:13,399 Speaker 1: considerable amount of stimulus that came in as well as 337 00:19:13,480 --> 00:19:17,840 Speaker 1: quantitative easing, and with quantitative easing, there was a continued 338 00:19:17,880 --> 00:19:20,760 Speaker 1: expansion of this easy money policy in the twenty twenty 339 00:19:20,760 --> 00:19:25,200 Speaker 1: one time frame, specifically in the form of reserves being 340 00:19:25,240 --> 00:19:27,880 Speaker 1: parked at and the bank balance sheets, and that those 341 00:19:27,920 --> 00:19:32,360 Speaker 1: reserves being pretty readily deployed into the markets. 342 00:19:32,160 --> 00:19:35,399 Speaker 2: Meaning the Federal Reserve parks reserves at all the major 343 00:19:35,440 --> 00:19:38,560 Speaker 2: money center banks. They use that for fractional lending and 344 00:19:38,640 --> 00:19:40,600 Speaker 2: out it goes into the system exactly. 345 00:19:40,680 --> 00:19:43,080 Speaker 1: And one of the areas where the banks were very 346 00:19:43,119 --> 00:19:46,520 Speaker 1: active with those reserves was buying triple A securities, and 347 00:19:46,560 --> 00:19:52,440 Speaker 1: the widest spread triple A securities were clos so COLO 348 00:19:52,920 --> 00:19:55,960 Speaker 1: formation was at an all time high in twenty twenty one, 349 00:19:56,359 --> 00:19:59,480 Speaker 1: after the COVID nineteen pandemic actually had already occurred. 350 00:19:59,200 --> 00:20:03,720 Speaker 2: So collateral loan obligation means that there's some underlying asset 351 00:20:04,080 --> 00:20:07,000 Speaker 2: which is used as your collateral. You then break that 352 00:20:07,080 --> 00:20:09,919 Speaker 2: up into different securities and different trenches, and out it goes, 353 00:20:10,320 --> 00:20:13,800 Speaker 2: and it's a reasonable way to do financing, depending on 354 00:20:13,840 --> 00:20:17,240 Speaker 2: what risk level the lenser wants to assume. 355 00:20:17,440 --> 00:20:19,879 Speaker 1: Sure, So in a COLO, the asset side of the 356 00:20:19,920 --> 00:20:23,440 Speaker 1: balance sheet are syndicated loans that are originated by Wall 357 00:20:23,480 --> 00:20:29,000 Speaker 1: Street banks and really just distributed out to investment managers 358 00:20:29,040 --> 00:20:33,000 Speaker 1: like oak Tree and others who put together diversified portfolios 359 00:20:33,520 --> 00:20:37,879 Speaker 1: and then lever those portfolios with rated securities starting with 360 00:20:37,920 --> 00:20:39,639 Speaker 1: triple A all the way down to double B or 361 00:20:39,680 --> 00:20:42,000 Speaker 1: single B and then an equity tranch at the bottom. 362 00:20:42,520 --> 00:20:45,879 Speaker 1: But the biggest part of that capital structure, about sixty 363 00:20:45,920 --> 00:20:48,520 Speaker 1: percent of it, are the triple A securities. So when 364 00:20:48,560 --> 00:20:52,119 Speaker 1: you do see a sudden and dramatic increase in the 365 00:20:52,200 --> 00:20:55,840 Speaker 1: buying interest or the demand for triple A securities like 366 00:20:56,040 --> 00:20:58,639 Speaker 1: what you saw in twenty twenty one, all of a sudden, 367 00:20:58,640 --> 00:21:02,040 Speaker 1: the equity arbitrage available to the equity investor of a 368 00:21:02,080 --> 00:21:05,199 Speaker 1: CLO becomes far more attractive because the cost of borrowing 369 00:21:05,240 --> 00:21:09,200 Speaker 1: becomes meaningfully lower. And so a tremendous amount of CLO 370 00:21:09,240 --> 00:21:11,879 Speaker 1: issuance occurred in twenty twenty one, larger, more active than 371 00:21:11,880 --> 00:21:15,200 Speaker 1: any other year on record, And so the banks were 372 00:21:16,080 --> 00:21:20,480 Speaker 1: originating debt to place into this COLO formation engine. What 373 00:21:20,600 --> 00:21:23,680 Speaker 1: ended up happening, however, in twenty twenty two, I'm sure 374 00:21:23,680 --> 00:21:26,040 Speaker 1: everybody recalls that the FED said, you know, this inflation 375 00:21:26,160 --> 00:21:29,680 Speaker 1: thing might not be transitory. The FED decided that because 376 00:21:29,720 --> 00:21:34,920 Speaker 1: inflation was not temporary, that he needed to move very 377 00:21:34,920 --> 00:21:39,200 Speaker 1: swiftly and with a great magnitude. It needed to raise 378 00:21:39,280 --> 00:21:43,280 Speaker 1: rates five hundred basis points in eighteen months. And that 379 00:21:43,600 --> 00:21:48,479 Speaker 1: sudden increase in rates and the inflationary backdrop caused a 380 00:21:48,920 --> 00:21:53,280 Speaker 1: significant pullback in the credit markets. By June thirtieth of 381 00:21:53,280 --> 00:21:56,479 Speaker 1: twenty twenty two, you saw high yield bonds down sixteen percent, 382 00:21:56,920 --> 00:22:00,560 Speaker 1: you saw senior loans down seven percent, huge price movements 383 00:22:00,560 --> 00:22:04,399 Speaker 1: in these securities really based on the sudden increase in 384 00:22:04,560 --> 00:22:05,280 Speaker 1: the yield curve. 385 00:22:05,960 --> 00:22:10,800 Speaker 2: How significant was that big rush into triple A colos 386 00:22:10,840 --> 00:22:13,960 Speaker 2: to what took place afterwards? What was the driver of 387 00:22:14,000 --> 00:22:16,680 Speaker 2: that in twenty twenty one, and then how did that 388 00:22:17,040 --> 00:22:18,840 Speaker 2: unfold into the mess in twenty two. 389 00:22:19,160 --> 00:22:21,160 Speaker 1: So in twenty twenty one, there was about one hundred 390 00:22:21,200 --> 00:22:24,240 Speaker 1: and seventy five billion dollars of COLO issuance that year, 391 00:22:24,920 --> 00:22:28,359 Speaker 1: and again largely driven by this demand from the FED 392 00:22:28,440 --> 00:22:31,240 Speaker 1: infusing reserves at the banks and the banks deploying that 393 00:22:31,320 --> 00:22:33,080 Speaker 1: capital through COLO triple as it. 394 00:22:33,000 --> 00:22:36,239 Speaker 2: Seems a little circular that the FED does QE, the 395 00:22:36,280 --> 00:22:40,000 Speaker 2: FED parks all this cash at banks, the FED drives 396 00:22:40,000 --> 00:22:44,439 Speaker 2: CLO appetite, and then subsequent, oh, you know, maybe we 397 00:22:44,560 --> 00:22:47,560 Speaker 2: need to take rates higher. That they're on both sides 398 00:22:47,800 --> 00:22:48,840 Speaker 2: of shaking everything up. 399 00:22:48,880 --> 00:22:51,000 Speaker 1: They're on both sides of shaking it up. And you know, 400 00:22:51,080 --> 00:22:55,320 Speaker 1: from a CLO investor standpoint, the clos have have floating 401 00:22:55,440 --> 00:22:58,680 Speaker 1: rate features to them. So those investors said, wow, my 402 00:22:59,000 --> 00:23:01,760 Speaker 1: return just went up magically, Thank you very much. Fed. 403 00:23:02,320 --> 00:23:07,240 Speaker 1: But when quantitative easing turned into quantitative tightening, that's when 404 00:23:07,280 --> 00:23:09,919 Speaker 1: the shift occurred. Because if you're a risk manager at 405 00:23:09,920 --> 00:23:12,919 Speaker 1: a bank and all of a sudden, the reserve flow 406 00:23:13,080 --> 00:23:15,520 Speaker 1: is not coming your direction anymore, you're the expectation that 407 00:23:15,720 --> 00:23:18,120 Speaker 1: it will go the opposite direction. So then you turn 408 00:23:18,200 --> 00:23:21,280 Speaker 1: to your investors and you say stop investing, and that's 409 00:23:21,320 --> 00:23:23,800 Speaker 1: what happened. The banks then said I'm not a buyer 410 00:23:23,800 --> 00:23:26,840 Speaker 1: of tripleas at all, at any price, and at that 411 00:23:26,960 --> 00:23:29,560 Speaker 1: point the colo formation engine just halted. 412 00:23:30,119 --> 00:23:32,560 Speaker 2: Is that a gradual process or is it like a 413 00:23:32,640 --> 00:23:36,320 Speaker 2: switch gets flicked and that's it. No more bets. 414 00:23:37,040 --> 00:23:40,200 Speaker 1: It felt like a switch, but that switch took about 415 00:23:40,240 --> 00:23:43,800 Speaker 1: three to six months to get to really be felt. 416 00:23:44,600 --> 00:23:46,680 Speaker 1: You know. The first quarter of twenty twenty two things 417 00:23:46,720 --> 00:23:49,840 Speaker 1: felt a little choppy. Second quarter they felt like the 418 00:23:50,200 --> 00:23:55,760 Speaker 1: floor was coming out. It was huge price declines. The 419 00:23:55,960 --> 00:23:59,080 Speaker 1: investment banks were stuck with syndications that they had committed 420 00:23:59,119 --> 00:24:01,840 Speaker 1: to a place in the markets with price caps on 421 00:24:02,200 --> 00:24:05,560 Speaker 1: the coupons. They then had to move out hung loans 422 00:24:05,600 --> 00:24:10,000 Speaker 1: at meaningful discounts. Resulted in big losses from the syndication 423 00:24:10,080 --> 00:24:11,879 Speaker 1: of those loans. You know, historically you make fees when 424 00:24:11,920 --> 00:24:14,000 Speaker 1: you syndicate. This time it was twenty twenty two is 425 00:24:14,040 --> 00:24:17,840 Speaker 1: a massive loss year for the banks. But with that volatility, 426 00:24:18,000 --> 00:24:22,320 Speaker 1: as the banks experienced these losses and stopped committing to 427 00:24:22,359 --> 00:24:25,280 Speaker 1: syndication to earn these fees, the direct lenders had the 428 00:24:25,320 --> 00:24:28,960 Speaker 1: opportunity to step in into that void and provide capital 429 00:24:29,040 --> 00:24:32,520 Speaker 1: that was secure in terms of a certainty of execution, 430 00:24:33,000 --> 00:24:35,639 Speaker 1: and so private equity sponsors and other borrowers that wanted 431 00:24:35,680 --> 00:24:39,200 Speaker 1: to have that certainty of execution said you know, fine, 432 00:24:39,200 --> 00:24:41,359 Speaker 1: I'll pay a little bit more in my spread, and 433 00:24:41,400 --> 00:24:43,960 Speaker 1: I will have a single lender or maybe a small 434 00:24:43,960 --> 00:24:47,120 Speaker 1: consortion of lenders give me the capital that I need 435 00:24:47,119 --> 00:24:49,520 Speaker 1: to go buy this company. And I don't have to 436 00:24:49,560 --> 00:24:53,640 Speaker 1: worry about going through a ratings process, doing a road 437 00:24:53,680 --> 00:24:55,840 Speaker 1: show and pitching this to fifty or one hundred different 438 00:24:56,200 --> 00:24:59,080 Speaker 1: management or investment managers. I could talk to three or 439 00:24:59,119 --> 00:25:01,919 Speaker 1: four directly lenders and get this job done. And so 440 00:25:02,200 --> 00:25:05,760 Speaker 1: it resulted in a massive expansion opportunity for direct lenders 441 00:25:06,200 --> 00:25:10,240 Speaker 1: and a widening of pricing for the direct lending market. 442 00:25:10,320 --> 00:25:13,359 Speaker 1: In addition to the floating rate going up, you know, 443 00:25:13,400 --> 00:25:15,200 Speaker 1: four hundred bases points five hundred bases. 444 00:25:15,240 --> 00:25:18,879 Speaker 2: So let's talk about that before we get to private credit. 445 00:25:19,280 --> 00:25:23,840 Speaker 2: First time in decades, treasuries and investment grade corporates. It's 446 00:25:24,160 --> 00:25:26,600 Speaker 2: an attractive yield at five five and a half percent. 447 00:25:27,400 --> 00:25:29,800 Speaker 2: What does this mean for what's going on in the 448 00:25:30,200 --> 00:25:35,280 Speaker 2: world of privates? If if you can very relatively safely 449 00:25:35,480 --> 00:25:39,000 Speaker 2: get in the fives, what does it mean for private 450 00:25:39,040 --> 00:25:43,960 Speaker 2: credit for colos, for direct lending compared to that. I 451 00:25:44,000 --> 00:25:47,439 Speaker 2: don't want to say risk free. Course, Tripolic corporates aren't, 452 00:25:47,440 --> 00:25:49,919 Speaker 2: but you know the two year, the ten year, you're 453 00:25:50,240 --> 00:25:51,120 Speaker 2: not that far off. 454 00:25:51,200 --> 00:25:55,480 Speaker 1: Yeah, it's from an absolute return standpoint, treasuries, IG corporates 455 00:25:56,000 --> 00:25:59,320 Speaker 1: are high yeal bonds are more attractive than they've been 456 00:25:59,359 --> 00:26:02,919 Speaker 1: in very long time. They are as long as an 457 00:26:02,960 --> 00:26:06,719 Speaker 1: investor has the willingness to own a longer duration asset, 458 00:26:07,400 --> 00:26:12,520 Speaker 1: they are very attractive investment opportunities, and we would recommend investors, 459 00:26:12,600 --> 00:26:15,520 Speaker 1: you know, buy a basket of those types of securities. Now, 460 00:26:15,520 --> 00:26:18,520 Speaker 1: in the case of private credit, you do pick up 461 00:26:18,600 --> 00:26:22,399 Speaker 1: a lot more return for in exchange for the complexity 462 00:26:22,440 --> 00:26:25,199 Speaker 1: of the situation as well as the illiquidity. You know, 463 00:26:25,240 --> 00:26:28,359 Speaker 1: in the case of private credit to large businesses, you know, 464 00:26:28,400 --> 00:26:30,359 Speaker 1: these are companies that have one hundred million of EBIT 465 00:26:30,359 --> 00:26:32,919 Speaker 1: DOT or more, or have an enterprise value of a 466 00:26:33,000 --> 00:26:35,840 Speaker 1: billion dollars or more, and they're being bought out by 467 00:26:35,840 --> 00:26:38,960 Speaker 1: private equity firms. The pricing we're seeing on first lean 468 00:26:39,000 --> 00:26:42,000 Speaker 1: debt and those types of situations is about twelve percent. 469 00:26:42,320 --> 00:26:45,360 Speaker 1: But from a relative value perspective and a risk adjusted 470 00:26:45,400 --> 00:26:49,520 Speaker 1: return perspective, getting twelve percent to lend to that size 471 00:26:49,520 --> 00:26:52,000 Speaker 1: of a business with that type of backing from a 472 00:26:52,080 --> 00:26:55,640 Speaker 1: household name type private equity firm, it's a very attractive 473 00:26:55,680 --> 00:27:00,480 Speaker 1: risk adjusted return and I would say it's be part 474 00:27:00,520 --> 00:27:05,480 Speaker 1: of an investor's credit appetite. And frankly, I think it 475 00:27:06,400 --> 00:27:11,040 Speaker 1: it favors credit or the topic we're discussing about favors 476 00:27:11,040 --> 00:27:13,840 Speaker 1: credit over equities actually over the over the next few years, 477 00:27:13,840 --> 00:27:16,520 Speaker 1: because if you think about the size of the corporate pie, 478 00:27:16,800 --> 00:27:19,080 Speaker 1: you know, with COVID nineteen and with inflation, the size 479 00:27:19,119 --> 00:27:21,560 Speaker 1: of that corporate pie generally hasn't changed too much over 480 00:27:21,560 --> 00:27:24,440 Speaker 1: the last few years, but with a sudden increase in rates, 481 00:27:25,240 --> 00:27:27,639 Speaker 1: essentially the FED has said, well, I'm going to slice 482 00:27:27,640 --> 00:27:29,320 Speaker 1: off more of that pie for creditors than i am 483 00:27:29,359 --> 00:27:32,560 Speaker 1: for equity. And that was the opposite in this easy 484 00:27:32,600 --> 00:27:36,199 Speaker 1: money period following the global financial crisis and ending, you know, 485 00:27:36,240 --> 00:27:39,399 Speaker 1: in the twenty twenty one timeframe when QE was was 486 00:27:39,440 --> 00:27:42,960 Speaker 1: then reversed with inflation. 487 00:27:42,680 --> 00:27:45,760 Speaker 2: And that twelve percent you mentioned so for earlier the 488 00:27:45,760 --> 00:27:49,600 Speaker 2: replacement for libor that sounds like sofur plus six six 489 00:27:49,640 --> 00:27:50,600 Speaker 2: and a half percent. 490 00:27:50,320 --> 00:27:53,080 Speaker 1: Is exactly the typical loan today's priced that so for 491 00:27:53,200 --> 00:27:55,359 Speaker 1: plus six to six and a half percent with about 492 00:27:55,359 --> 00:27:58,880 Speaker 1: two or three points of discount and origination. And again 493 00:27:58,960 --> 00:28:01,840 Speaker 1: the equity checks being written by the private equity firms 494 00:28:01,880 --> 00:28:04,960 Speaker 1: generally speaking, or over fifty percent of the capital needed 495 00:28:05,000 --> 00:28:05,760 Speaker 1: to buy the business. 496 00:28:05,840 --> 00:28:08,480 Speaker 2: So let's talk a little bit about the spread back 497 00:28:08,520 --> 00:28:12,240 Speaker 2: when rates were zero and the ten year was two 498 00:28:12,280 --> 00:28:15,640 Speaker 2: percent or under. It seemed like you weren't getting paid 499 00:28:15,680 --> 00:28:18,800 Speaker 2: for duration risk, you weren't getting paid for credit risk. 500 00:28:19,040 --> 00:28:21,920 Speaker 2: Even I know we don't use the term junk anymore, 501 00:28:22,119 --> 00:28:26,520 Speaker 2: but even high yield was barely above investment grade corporates. 502 00:28:26,960 --> 00:28:29,720 Speaker 2: How has that spread changed now that the floor is 503 00:28:30,000 --> 00:28:32,960 Speaker 2: five five and a half percent for FED rates. 504 00:28:33,040 --> 00:28:37,320 Speaker 1: Yeah, so the spread back then, when in the easier times, 505 00:28:37,320 --> 00:28:39,880 Speaker 1: the spreads were generally four seventy five to five point 506 00:28:39,880 --> 00:28:43,440 Speaker 1: fifty over sofur for the equivalent risk today that is 507 00:28:43,440 --> 00:28:46,640 Speaker 1: being priced at six twenty five six fifty over. So 508 00:28:46,680 --> 00:28:50,280 Speaker 1: it's about one hundred and fifty bases points wider in 509 00:28:50,560 --> 00:28:54,320 Speaker 1: just eighteen months. And that's in addition to SOFA rising 510 00:28:54,360 --> 00:28:54,880 Speaker 1: as much as it is. 511 00:28:54,960 --> 00:28:57,400 Speaker 2: So what does that tell us when the spread's won 512 00:28:57,600 --> 00:28:58,080 Speaker 2: like that. 513 00:28:58,320 --> 00:29:01,680 Speaker 1: When spreads widened, it either means that there's risk of 514 00:29:01,760 --> 00:29:04,760 Speaker 1: default that's higher, which I don't think is the case 515 00:29:04,960 --> 00:29:08,400 Speaker 1: in this new vintage. I think it's more a technical 516 00:29:08,440 --> 00:29:12,920 Speaker 1: imbalance between the demand for private credit versus the supply 517 00:29:13,000 --> 00:29:17,600 Speaker 1: of private credit, and that's what's caused that meaningful widening. 518 00:29:17,640 --> 00:29:21,040 Speaker 1: And there just is less competition from the banks. The 519 00:29:21,080 --> 00:29:25,560 Speaker 1: banks were the alternative financing tool for private equity sponsors 520 00:29:25,600 --> 00:29:28,200 Speaker 1: wanting to do an LBO, and with those banks taking 521 00:29:28,200 --> 00:29:30,640 Speaker 1: a step back because of their syndication losses in twenty 522 00:29:30,640 --> 00:29:35,600 Speaker 1: twenty two, it created a attractive pricing opportunity for the 523 00:29:35,640 --> 00:29:39,040 Speaker 1: private credit lenders to step in where the banks were 524 00:29:39,040 --> 00:29:42,240 Speaker 1: stepping away and expand those spreads pretty meaningfully. 525 00:29:42,400 --> 00:29:46,440 Speaker 2: H really quite interesting. Let's talk a little bit about 526 00:29:46,520 --> 00:29:48,960 Speaker 2: that role that kind of unusual. You don't have a 527 00:29:49,000 --> 00:29:52,040 Speaker 2: whole lot of co CEOs. Tell us a little bit 528 00:29:52,080 --> 00:29:55,920 Speaker 2: about what the process has been like getting ready for 529 00:29:55,960 --> 00:29:57,000 Speaker 2: this new transition. 530 00:29:57,640 --> 00:29:59,400 Speaker 1: Yeah, it's been you know, I've been at the firm 531 00:29:59,440 --> 00:30:03,239 Speaker 1: for over sixteen years, and the firm was founded by 532 00:30:03,280 --> 00:30:06,960 Speaker 1: Howard Marx and Bruce Karsh to investors, and so the 533 00:30:07,040 --> 00:30:11,040 Speaker 1: model for oak Tree, you know, has been that we 534 00:30:11,080 --> 00:30:16,960 Speaker 1: would have investors overseeing the firm overall. You know, we 535 00:30:17,000 --> 00:30:21,600 Speaker 1: went public in twenty twelve, and that entrepreneurial history of 536 00:30:21,640 --> 00:30:25,280 Speaker 1: oak Tree since its founding required a little bit more 537 00:30:25,280 --> 00:30:28,800 Speaker 1: institutional framework, and so we did have a dedicated CEO, 538 00:30:29,160 --> 00:30:31,760 Speaker 1: Jay Win Troub. We did a great job of institutionalizing 539 00:30:31,800 --> 00:30:35,240 Speaker 1: oak Tree further and all of our business processes away 540 00:30:35,280 --> 00:30:37,480 Speaker 1: from the investment side that Howard and Bruce continue to 541 00:30:37,520 --> 00:30:40,680 Speaker 1: focus on. And so today we benefit from the efforts 542 00:30:40,680 --> 00:30:46,200 Speaker 1: taken by Jay to have a very professional organization. That 543 00:30:46,440 --> 00:30:49,200 Speaker 1: non investment side of our business will be managed by 544 00:30:49,240 --> 00:30:52,360 Speaker 1: Todd Moltz, who is a veteran of oak Tree, Chief 545 00:30:52,360 --> 00:30:56,160 Speaker 1: Administrative Officer of oak Tree and former general counsel of 546 00:30:56,200 --> 00:30:58,240 Speaker 1: the firm, so he will be taking on a lot 547 00:30:58,280 --> 00:31:01,520 Speaker 1: of those institutional non investment areas of the firm, and 548 00:31:01,600 --> 00:31:07,840 Speaker 1: Bob O'Leary and I, who run the opportunistic credit business 549 00:31:08,080 --> 00:31:10,840 Speaker 1: in Bob's case and the performing credit business in my case, 550 00:31:11,480 --> 00:31:14,600 Speaker 1: will take the mantle in terms of strategic leadership of 551 00:31:14,600 --> 00:31:15,640 Speaker 1: the firm as co CEOs. 552 00:31:15,720 --> 00:31:18,120 Speaker 2: You're still both going to be pms. You're still going 553 00:31:18,160 --> 00:31:21,720 Speaker 2: to be running funds and overseeing the investment. 554 00:31:21,840 --> 00:31:25,160 Speaker 1: Absolutely, I think to do a good job running oak Tree, 555 00:31:25,160 --> 00:31:27,360 Speaker 1: we want to be as close to our clients as possible, 556 00:31:27,680 --> 00:31:29,800 Speaker 1: and to be as close to our clients as possible 557 00:31:30,240 --> 00:31:31,600 Speaker 1: would mean that we need to be as close to 558 00:31:31,640 --> 00:31:34,280 Speaker 1: the markets and actual investments as possible. When I sit 559 00:31:34,280 --> 00:31:36,440 Speaker 1: down with clients, I think if I bring any value 560 00:31:36,480 --> 00:31:38,920 Speaker 1: to the table, it's giving them really on the ground 561 00:31:39,840 --> 00:31:41,760 Speaker 1: knowledge about what we're seeing in the markets from a 562 00:31:41,800 --> 00:31:45,080 Speaker 1: risk and return standpoint, and I think it's important as 563 00:31:45,120 --> 00:31:47,960 Speaker 1: the CEO to also to have that framework. 564 00:31:48,120 --> 00:31:51,280 Speaker 2: And sixteen years is unusual these days. Staying at the 565 00:31:51,320 --> 00:31:54,520 Speaker 2: same firm for that long. Tell us what makes oak 566 00:31:54,560 --> 00:31:58,520 Speaker 2: Tree special? What's kept you there for you know quite 567 00:31:58,520 --> 00:32:02,440 Speaker 2: a while, compared to most of the industry seems seems 568 00:32:02,480 --> 00:32:05,240 Speaker 2: to see people job hop from place to place. 569 00:32:05,440 --> 00:32:10,560 Speaker 1: Yeah, oak Tree culturally is a very stable organization. You've 570 00:32:10,600 --> 00:32:13,440 Speaker 1: met Howard several times. You know that Howard is not 571 00:32:13,520 --> 00:32:15,880 Speaker 1: somebody that changes his stripes, and therefore oak Tree is 572 00:32:15,960 --> 00:32:18,320 Speaker 1: not a place that changes its stripes, which is which 573 00:32:18,360 --> 00:32:21,400 Speaker 1: is great from a career standpoint, because as a firm, 574 00:32:21,800 --> 00:32:24,000 Speaker 1: you know that they're not going to take wild risks 575 00:32:24,040 --> 00:32:27,000 Speaker 1: just because everybody else is taking wild risks and then 576 00:32:27,040 --> 00:32:30,080 Speaker 1: jeopardize the firm's existence as a result of those risks 577 00:32:30,080 --> 00:32:32,560 Speaker 1: not panning out. We see that all too often in 578 00:32:32,600 --> 00:32:35,320 Speaker 1: the hedge fund space, and another with other investment managers 579 00:32:36,080 --> 00:32:38,400 Speaker 1: really going a little bit too far out on the 580 00:32:38,480 --> 00:32:41,440 Speaker 1: risk spectrum in their in their investment style and therefore 581 00:32:41,440 --> 00:32:44,000 Speaker 1: blowing themselves up and creating volatility in the lives of 582 00:32:44,000 --> 00:32:46,320 Speaker 1: people that work at those firms. Oak Tree has not 583 00:32:46,360 --> 00:32:49,400 Speaker 1: been one of those places, and I think personally, you know, 584 00:32:49,440 --> 00:32:53,520 Speaker 1: working directly for Bruce Karsh has been part of the 585 00:32:53,520 --> 00:32:55,560 Speaker 1: reason why, a main, a main part of the reason 586 00:32:55,560 --> 00:32:57,320 Speaker 1: why I've decided to stay at the firm as long 587 00:32:57,360 --> 00:32:59,600 Speaker 1: as I have, because he is the type of person 588 00:32:59,640 --> 00:33:01,320 Speaker 1: that I think think any investor would like to be, 589 00:33:02,200 --> 00:33:07,280 Speaker 1: you know, calm, cool, collected very very strong instincts about 590 00:33:07,960 --> 00:33:12,880 Speaker 1: people and businesses and behavior, and the willingness to have 591 00:33:12,880 --> 00:33:17,120 Speaker 1: a tremendous amount of conviction, especially when others don't have 592 00:33:17,160 --> 00:33:19,960 Speaker 1: the conviction. I think Bruce has shown that time and 593 00:33:20,000 --> 00:33:22,920 Speaker 1: again in his career, and so having the opportunity to 594 00:33:22,960 --> 00:33:25,840 Speaker 1: learn from a guy like Bruce Karsh has kept the 595 00:33:25,960 --> 00:33:29,240 Speaker 1: job really interesting. And I haven't felt that sixteen years 596 00:33:29,360 --> 00:33:31,760 Speaker 1: has gone by slowly at all. I think it's gone 597 00:33:31,760 --> 00:33:32,719 Speaker 1: by very very quickly. 598 00:33:32,880 --> 00:33:37,719 Speaker 2: So I would imagine if you specialize in distressed debt investing, 599 00:33:38,440 --> 00:33:41,800 Speaker 2: you're not going to be an emotional, flighty cowboy. Those 600 00:33:41,840 --> 00:33:45,880 Speaker 2: guys don't survive. You have to be calm, cool, and collected. 601 00:33:46,480 --> 00:33:50,920 Speaker 2: It's like a surgeon, a neurosurgeon. You have to be 602 00:33:51,120 --> 00:33:57,040 Speaker 2: very precise and very measured and recognize how the crowd 603 00:33:57,080 --> 00:33:59,440 Speaker 2: has lost its mind and you're going to take advantage 604 00:33:59,480 --> 00:34:02,719 Speaker 2: of it. I get that sense from both Bruce and 605 00:34:02,920 --> 00:34:08,160 Speaker 2: Howard a little bit contrarian and not given to overreactions. 606 00:34:08,239 --> 00:34:11,279 Speaker 1: Absolutely, you have to be patient, you have to be unemotional, 607 00:34:11,840 --> 00:34:13,799 Speaker 1: and you have to know that there will be times 608 00:34:13,800 --> 00:34:16,400 Speaker 1: where you're unpopular and that's okay. 609 00:34:16,480 --> 00:34:18,040 Speaker 2: Oh really, why do you say that? 610 00:34:18,520 --> 00:34:23,160 Speaker 1: Because you know when you are investing, the rest of 611 00:34:23,200 --> 00:34:26,760 Speaker 1: the world is fleeing, and so you are calling capital 612 00:34:27,200 --> 00:34:29,960 Speaker 1: when the when your clients are hearing from the rest 613 00:34:29,960 --> 00:34:32,960 Speaker 1: of their investment managers that it's an absolute bloodbath out there, 614 00:34:33,480 --> 00:34:37,440 Speaker 1: and so answering those questions takes some fortitude. But the 615 00:34:37,480 --> 00:34:39,239 Speaker 1: good news is at this point oak Tree is so 616 00:34:39,360 --> 00:34:42,440 Speaker 1: well known for taking that type of contrarian bet that 617 00:34:42,560 --> 00:34:46,360 Speaker 1: we're not we're not suffering from that as much. But 618 00:34:46,360 --> 00:34:49,280 Speaker 1: but it certainly is a It certainly is an important 619 00:34:49,280 --> 00:34:50,880 Speaker 1: feature of being a distressed that investor. 620 00:34:50,920 --> 00:34:54,279 Speaker 2: And you mentioned you know, at times you're unpopular. But 621 00:34:55,080 --> 00:34:58,680 Speaker 2: like we talked about earlier in eight oh nine, o seven, 622 00:34:59,560 --> 00:35:02,040 Speaker 2: if you're the only bid, I would think people would 623 00:35:02,120 --> 00:35:05,279 Speaker 2: be grateful that, Hey, at least somebody's on the other 624 00:35:05,320 --> 00:35:08,760 Speaker 2: side of the trade. But for you guys, there's no bid. 625 00:35:09,080 --> 00:35:10,960 Speaker 1: Yeah, they were grateful at the time, but then when 626 00:35:10,960 --> 00:35:13,240 Speaker 1: they saw our returns, they you know, they were pretty 627 00:35:13,280 --> 00:35:16,480 Speaker 1: upset about it because, you know, selling, selling to. 628 00:35:16,440 --> 00:35:18,120 Speaker 2: Make them sell, that was their decision. 629 00:35:18,160 --> 00:35:20,239 Speaker 1: Oh yeah, just there, Yeah, it was. It was the 630 00:35:20,719 --> 00:35:24,439 Speaker 1: structures that were put in place prior to the GFC, unfortunately, 631 00:35:25,120 --> 00:35:28,200 Speaker 1: were not conducive to that type of you know, someon 632 00:35:28,200 --> 00:35:29,840 Speaker 1: would call it a six sigma event. I don't know 633 00:35:29,840 --> 00:35:32,520 Speaker 1: that it was, but that type of an extreme reaction 634 00:35:32,680 --> 00:35:36,880 Speaker 1: in the markets and and withdrawal from investors out of 635 00:35:36,880 --> 00:35:39,960 Speaker 1: the market so rapidly, these structures just weren't set up 636 00:35:39,960 --> 00:35:40,200 Speaker 1: for it. 637 00:35:41,040 --> 00:35:43,560 Speaker 2: Human nature is what human nature is going to be. Right, 638 00:35:43,640 --> 00:35:46,400 Speaker 2: If if someone is selling one hundred dollars bills for 639 00:35:46,440 --> 00:35:49,280 Speaker 2: fifty dollars, they can't blame you. If you're a buyer 640 00:35:49,520 --> 00:35:53,120 Speaker 2: who told them to sell. Absolutely, that's quite fascinating. So 641 00:35:53,640 --> 00:35:57,080 Speaker 2: you mentioned you want to stay close to what's going 642 00:35:57,120 --> 00:36:00,759 Speaker 2: on in the investing world to fulfill this new role 643 00:36:00,760 --> 00:36:06,320 Speaker 2: as incoming co CEO. When you look at this present environment, 644 00:36:06,800 --> 00:36:10,240 Speaker 2: do you think of yourselves more as bottom up credit 645 00:36:10,280 --> 00:36:14,200 Speaker 2: pickers or do you look at the macro environment and say, hey, 646 00:36:14,239 --> 00:36:16,560 Speaker 2: we have to figure out what's going on there. 647 00:36:16,600 --> 00:36:20,399 Speaker 1: Also, we're bottoms up credit pickers. We are not macro forecasters, 648 00:36:20,440 --> 00:36:23,960 Speaker 1: but we are macro aware understanding what's happening in the 649 00:36:23,960 --> 00:36:28,680 Speaker 1: economy with technicals in the markets, those influence or can 650 00:36:28,800 --> 00:36:33,040 Speaker 1: influence the performance of certain sectors. For example, interest rate 651 00:36:33,120 --> 00:36:36,440 Speaker 1: sensitive sectors that may be impacted in a more violent 652 00:36:36,480 --> 00:36:38,600 Speaker 1: way because of the rapid rate increase. 653 00:36:38,680 --> 00:36:41,680 Speaker 2: As an example, so any long duration you have to 654 00:36:41,719 --> 00:36:42,080 Speaker 2: be aware. 655 00:36:42,560 --> 00:36:45,640 Speaker 1: Real estate that values itself based on cap rates, which 656 00:36:45,640 --> 00:36:48,040 Speaker 1: is a derivative of the tenure treasury. That's an example. 657 00:36:48,719 --> 00:36:52,239 Speaker 1: Another floating rate Another interst rate sensitive asset class or 658 00:36:52,360 --> 00:36:57,760 Speaker 1: LBOs highly levered leverage buyouts supported by floating rate liabilities. 659 00:36:58,080 --> 00:37:01,279 Speaker 1: That's an interest rate sensitive asset class. So you know 660 00:37:01,320 --> 00:37:05,320 Speaker 1: we are macro aware that definitely. I think tips the 661 00:37:05,360 --> 00:37:07,440 Speaker 1: scale in some ways in terms of, you know, is 662 00:37:07,440 --> 00:37:10,280 Speaker 1: there a bigger investment opportunity coming or a smaller investment 663 00:37:10,280 --> 00:37:12,239 Speaker 1: opportunity coming. But at the end of the day, the 664 00:37:12,280 --> 00:37:15,200 Speaker 1: companies we invest in are bottoms up or based on 665 00:37:15,239 --> 00:37:19,120 Speaker 1: bottoms up credit analytics that we have the conviction and 666 00:37:19,160 --> 00:37:24,200 Speaker 1: will return power plus accrued through a cycle, and if 667 00:37:24,239 --> 00:37:26,320 Speaker 1: they don't, we're happy to own them at the valuation 668 00:37:26,760 --> 00:37:28,479 Speaker 1: that we are creating that company at. 669 00:37:28,719 --> 00:37:33,920 Speaker 2: Huh. That's really quite intriguing. So I like that concept 670 00:37:33,960 --> 00:37:39,480 Speaker 2: of macro aware. How do you deal with the macro 671 00:37:39,680 --> 00:37:43,680 Speaker 2: environment that has been forecasting recession for I don't know, 672 00:37:43,680 --> 00:37:46,799 Speaker 2: it feels like three years now, and for most of 673 00:37:46,840 --> 00:37:50,680 Speaker 2: that time there's been a fairly inverted yield curve, especially 674 00:37:50,760 --> 00:37:54,720 Speaker 2: once the FED started really hiking rates in early twenty 675 00:37:54,719 --> 00:37:55,200 Speaker 2: twenty two. 676 00:37:55,680 --> 00:38:00,400 Speaker 1: Yeah, the indicators are sending mixed messages. Obviously, in inflation 677 00:38:00,680 --> 00:38:02,960 Speaker 1: or control of inflation is heading in the right direction, 678 00:38:03,080 --> 00:38:05,120 Speaker 1: but still not the level that it needs to be 679 00:38:05,160 --> 00:38:10,400 Speaker 1: at for the FED to pause raising rates. The employment picture, 680 00:38:10,480 --> 00:38:14,240 Speaker 1: or the unemployment picture is actually quite stable. Consumer spending 681 00:38:14,560 --> 00:38:20,080 Speaker 1: is stable, although credit card defaults another consumer starting to 682 00:38:20,120 --> 00:38:23,040 Speaker 1: take up. So we might be at the inflection point now, 683 00:38:23,080 --> 00:38:25,399 Speaker 1: and it's always confusing when you're at the inflection point 684 00:38:25,440 --> 00:38:28,600 Speaker 1: where when you look at historical data, backward looking data, 685 00:38:28,840 --> 00:38:31,160 Speaker 1: it shows a different picture than what the forward would 686 00:38:31,239 --> 00:38:35,120 Speaker 1: would indicate. I think it's hard to avoid a recession 687 00:38:35,719 --> 00:38:39,040 Speaker 1: with such high rates and with the inverted yield curve. Eventually, 688 00:38:39,120 --> 00:38:41,759 Speaker 1: what that says to me is the FED is going 689 00:38:41,800 --> 00:38:45,080 Speaker 1: to keep rates as high as possible for as long 690 00:38:45,120 --> 00:38:48,120 Speaker 1: as possible until something breaks in the economy. 691 00:38:48,600 --> 00:38:51,480 Speaker 2: When you say something breaks, we're not talking Silicon Valley 692 00:38:51,480 --> 00:38:55,520 Speaker 2: Bank or those specific regionals you're talking. 693 00:38:55,560 --> 00:38:58,080 Speaker 1: I'm talking. I'm talking with something about in the actual 694 00:38:58,080 --> 00:39:01,400 Speaker 1: economy itself. Growth slows down, investment in certain types of 695 00:39:01,400 --> 00:39:06,600 Speaker 1: capital expenditures slows down, the availability of capital becomes more challenged, 696 00:39:06,600 --> 00:39:10,319 Speaker 1: and there is an increase in residential foreclosures, something that 697 00:39:10,440 --> 00:39:13,760 Speaker 1: means more than just a bank failing here or there 698 00:39:13,800 --> 00:39:16,959 Speaker 1: because of a duration mismatch. That's really what Silicon Valley 699 00:39:16,960 --> 00:39:19,560 Speaker 1: Bank was. Silicon Valley banks failure is not enough for 700 00:39:19,600 --> 00:39:21,680 Speaker 1: the FED to do anything, and we saw that. I mean, 701 00:39:21,719 --> 00:39:26,600 Speaker 1: they really did not pause at all. And so I 702 00:39:26,640 --> 00:39:29,920 Speaker 1: think that as we look forward, I don't know how 703 00:39:30,400 --> 00:39:33,600 Speaker 1: we actually avoid a recession because I don't think that 704 00:39:33,719 --> 00:39:37,080 Speaker 1: we will. I don't think that the FED will have 705 00:39:37,239 --> 00:39:41,040 Speaker 1: enough data to support a decline in rates or reducing 706 00:39:41,120 --> 00:39:44,840 Speaker 1: rates without a recession. And so if rates stay higher 707 00:39:45,200 --> 00:39:48,080 Speaker 1: for an extended period of time, higher for longer, then 708 00:39:48,160 --> 00:39:52,200 Speaker 1: that in itself could cause a decline and availability of 709 00:39:52,239 --> 00:39:55,880 Speaker 1: capital of lending and therefore recession. And that's why you know, 710 00:39:56,120 --> 00:39:59,759 Speaker 1: an inverted yield curve has historically been highly correlated or 711 00:40:00,040 --> 00:40:03,160 Speaker 1: nder percent correlated with a recession because the cost of 712 00:40:03,160 --> 00:40:05,520 Speaker 1: borrowing in the short term is higher than the long term, 713 00:40:05,960 --> 00:40:10,000 Speaker 1: and that doesn't work for banks because they borrow short 714 00:40:10,080 --> 00:40:13,239 Speaker 1: and lend long. So it just means that the FED 715 00:40:13,320 --> 00:40:17,240 Speaker 1: is telling banks stop lending and to corporate borrowers, stop 716 00:40:17,320 --> 00:40:20,200 Speaker 1: borrowing for the purpose of investing in your business. That 717 00:40:20,239 --> 00:40:23,480 Speaker 1: will impact the economy. That will, and that will that 718 00:40:23,560 --> 00:40:25,839 Speaker 1: should create a recession. I think the reason I say 719 00:40:25,840 --> 00:40:29,120 Speaker 1: should and not would is because we also have stimulation 720 00:40:29,680 --> 00:40:32,560 Speaker 1: by the Biden administration in the form of infrastructure bills, 721 00:40:32,840 --> 00:40:37,200 Speaker 1: in the form of green manufacturing capabilities, reonsoring of certain 722 00:40:37,239 --> 00:40:40,200 Speaker 1: types of manufacturing, and that's stimulative. 723 00:40:40,680 --> 00:40:43,840 Speaker 2: I'm so glad you brought that up, because people seem 724 00:40:43,920 --> 00:40:47,400 Speaker 2: to be waiting for the care Zac stimulus, waiting for 725 00:40:47,520 --> 00:40:51,560 Speaker 2: the pig to go through the python. But between the Semiconductor, 726 00:40:51,600 --> 00:40:55,840 Speaker 2: the Infrastructure Bill, the Inflation Reduction Act, these are decade 727 00:40:55,880 --> 00:41:00,800 Speaker 2: long fiscal stimulus that are going to get spent over time, 728 00:41:00,880 --> 00:41:03,840 Speaker 2: and they're not just going to go away. Although clearly 729 00:41:03,880 --> 00:41:07,200 Speaker 2: they're nothing like Carezac one was like ten percent of GDP, 730 00:41:07,840 --> 00:41:11,200 Speaker 2: but still that's an ongoing tailwind for the economy. 731 00:41:11,480 --> 00:41:15,440 Speaker 1: It is, and we are in an election cycle now too, 732 00:41:15,440 --> 00:41:18,160 Speaker 1: with an incumbent running for reelection, I would expect that 733 00:41:18,960 --> 00:41:21,920 Speaker 1: if there's any pressure on more stimulus, if there is 734 00:41:21,960 --> 00:41:24,200 Speaker 1: pressure on stimulus, it'll it's to the upside, not to 735 00:41:24,239 --> 00:41:25,719 Speaker 1: the downside at this point. 736 00:41:26,040 --> 00:41:29,719 Speaker 2: So let's bring back this recession risk back to your 737 00:41:29,760 --> 00:41:33,319 Speaker 2: clients and the impact on private credit if we do 738 00:41:33,920 --> 00:41:37,560 Speaker 2: tumble into a recession somewhere in twenty twenty four, I 739 00:41:37,560 --> 00:41:42,839 Speaker 2: think is the latest consensus. What does this mean for 740 00:41:42,960 --> 00:41:43,720 Speaker 2: private credit? 741 00:41:44,360 --> 00:41:48,680 Speaker 1: Well, for private credit in older vintage deals, especially those 742 00:41:48,719 --> 00:41:53,520 Speaker 1: that were backing private equity sponsors in transactions, I think 743 00:41:53,560 --> 00:41:56,799 Speaker 1: there will be elevated defaults and risk, especially in the 744 00:41:56,840 --> 00:41:59,200 Speaker 1: weakest you know, maybe twenty or thirty percent of private 745 00:41:59,239 --> 00:42:03,680 Speaker 1: credit portfolio. We see this because we are a public 746 00:42:03,719 --> 00:42:08,560 Speaker 1: we own up, we manage a publicly traded BDC, and 747 00:42:08,600 --> 00:42:10,879 Speaker 1: so do a lot of our peers, and so we 748 00:42:10,960 --> 00:42:14,279 Speaker 1: watch the UH pressure building up in some of the 749 00:42:14,280 --> 00:42:18,080 Speaker 1: publicly traded BDCs the way they announce non apcruals or 750 00:42:18,080 --> 00:42:21,560 Speaker 1: amendment activity of underlying borrowers. And my expectation is that 751 00:42:21,680 --> 00:42:24,120 Speaker 1: generally speaking, if you if if investors were to watch 752 00:42:24,120 --> 00:42:26,680 Speaker 1: the publicly traded BDC market, they will see an escalation 753 00:42:27,200 --> 00:42:31,520 Speaker 1: in those types of those types of risks UH that 754 00:42:31,560 --> 00:42:34,480 Speaker 1: are reported by the BDCs. Now oak Tree in particular, 755 00:42:34,880 --> 00:42:37,200 Speaker 1: you know, we have a lot of capabilities in terms 756 00:42:37,239 --> 00:42:39,920 Speaker 1: of private credit, so we have not had to rely on, 757 00:42:40,480 --> 00:42:43,720 Speaker 1: you know, just lending the private equity sponsors to generate returns. 758 00:42:44,040 --> 00:42:48,200 Speaker 1: We have opportunistic credit capabilities, We have non sponsored credit 759 00:42:48,239 --> 00:42:51,080 Speaker 1: capabilities lending the companies that are publicly traded that that 760 00:42:51,200 --> 00:42:54,160 Speaker 1: need capital not for a buyout but for some strategic 761 00:42:54,200 --> 00:42:57,400 Speaker 1: growth initiative. So our particular book is quite balanced and 762 00:42:58,160 --> 00:43:01,960 Speaker 1: is quite clean relative to where we think the pressures 763 00:43:02,000 --> 00:43:04,720 Speaker 1: will reside over the course of the next twelve months. 764 00:43:04,880 --> 00:43:06,680 Speaker 1: So we feel good about our ability to kind of 765 00:43:06,760 --> 00:43:10,240 Speaker 1: lean into the market, and we also manage our private 766 00:43:10,280 --> 00:43:15,279 Speaker 1: credit book far less levered than what is ordinarily the 767 00:43:15,360 --> 00:43:19,120 Speaker 1: case in the market. So we are cautiously optimistic that 768 00:43:19,160 --> 00:43:22,600 Speaker 1: the cracks that we are seeing in the older vintage 769 00:43:22,600 --> 00:43:26,280 Speaker 1: private credit, the older vintage broadly syndicated loans, will create 770 00:43:26,360 --> 00:43:29,279 Speaker 1: opportunities for oak Tree in our sort of brand or 771 00:43:29,320 --> 00:43:32,680 Speaker 1: style of private credit. It's not the case for everybody, 772 00:43:32,680 --> 00:43:38,640 Speaker 1: but certainly oak Tree, as a countercyclical bent manager, will 773 00:43:38,680 --> 00:43:40,560 Speaker 1: benefit from the. 774 00:43:40,239 --> 00:43:43,240 Speaker 2: And your clients are primarily large institutions. 775 00:43:43,440 --> 00:43:48,480 Speaker 1: Our clients are primarily large institutions global. We do have 776 00:43:48,520 --> 00:43:50,279 Speaker 1: a retail client base as well in the form of 777 00:43:50,280 --> 00:43:55,160 Speaker 1: our publicly traded BDC, but the overwhelming majority of oak 778 00:43:55,160 --> 00:43:58,600 Speaker 1: Tree's clients are very large institutions that have invested across 779 00:43:58,640 --> 00:44:01,480 Speaker 1: a variety of oak Tree strategy, not just a single one. 780 00:44:01,719 --> 00:44:05,440 Speaker 2: Really quite interesting. So we're talking about rates, we're talking 781 00:44:05,440 --> 00:44:08,120 Speaker 2: about debt. We really haven't spent a whole lot of 782 00:44:08,120 --> 00:44:13,279 Speaker 2: time talking about the Federal Reserve. Are you an obsessive 783 00:44:13,400 --> 00:44:17,279 Speaker 2: Fed watcher? Does all of Jay Powell's comments each month 784 00:44:17,320 --> 00:44:20,280 Speaker 2: affect you or is it just kind of background noise 785 00:44:20,680 --> 00:44:22,479 Speaker 2: and you're watching what the market's doing. 786 00:44:22,840 --> 00:44:25,400 Speaker 1: Yeah, we're really watching what the market and the economy 787 00:44:25,440 --> 00:44:27,800 Speaker 1: are doing rather than hinging on every word that the 788 00:44:27,880 --> 00:44:33,400 Speaker 1: chairman has or says. Obviously, the information that the FED 789 00:44:33,600 --> 00:44:37,439 Speaker 1: has is very important in term that is, in terms 790 00:44:37,480 --> 00:44:41,240 Speaker 1: of digesting what's happening with the economy and the likelihood 791 00:44:41,320 --> 00:44:45,799 Speaker 1: that they pivot or not. So I would say it 792 00:44:45,920 --> 00:44:49,040 Speaker 1: goes into the same theme as being macro aware rather 793 00:44:49,080 --> 00:44:51,959 Speaker 1: than you know, really making key decisions based on every 794 00:44:51,960 --> 00:44:53,279 Speaker 1: word that the FED has. 795 00:44:53,640 --> 00:44:56,120 Speaker 2: And you know, I have to give as much as 796 00:44:56,160 --> 00:45:00,239 Speaker 2: people criticize this FED, I have to give Ja Pal 797 00:45:00,360 --> 00:45:04,520 Speaker 2: credit for being transparent saying this is what we're going 798 00:45:04,600 --> 00:45:06,839 Speaker 2: to do and then going out and doing it. The 799 00:45:06,880 --> 00:45:10,960 Speaker 2: market seems to constantly be doubting him. This is going 800 00:45:11,040 --> 00:45:12,719 Speaker 2: on for a couple of years. Hey, we're going to 801 00:45:12,800 --> 00:45:15,400 Speaker 2: do this, and they go out and do it. What 802 00:45:15,600 --> 00:45:19,080 Speaker 2: is it that keeps people second guessing? When the FED 803 00:45:19,120 --> 00:45:22,120 Speaker 2: says the sky is blue, they don't seem to believe them. 804 00:45:22,160 --> 00:45:24,520 Speaker 1: Yeah, it's it's odd to me too, to be honest 805 00:45:24,520 --> 00:45:27,120 Speaker 1: with you, because you know, coming out of the financial crisis, 806 00:45:27,320 --> 00:45:30,839 Speaker 1: there was a mantra that don't fight the FED, and 807 00:45:30,920 --> 00:45:32,799 Speaker 1: that nobody wanted to fight the Fed when the FED 808 00:45:32,880 --> 00:45:35,719 Speaker 1: was reducing rates. I don't understand why people want to 809 00:45:35,760 --> 00:45:37,279 Speaker 1: fight the FED when they're increasing rates. 810 00:45:37,280 --> 00:45:39,040 Speaker 2: I mean, it's well, you know, because they don't want 811 00:45:39,040 --> 00:45:39,839 Speaker 2: to pay higher rates. 812 00:45:39,920 --> 00:45:42,480 Speaker 1: Yeah, But when you don't fight the FED, just don't 813 00:45:42,480 --> 00:45:44,919 Speaker 1: fight them in both directions, is what I think I mean. 814 00:45:45,040 --> 00:45:47,760 Speaker 1: And I think you're right. Powell has been very clear, 815 00:45:48,680 --> 00:45:50,680 Speaker 1: and I think that the FED, for those for those 816 00:45:50,680 --> 00:45:53,840 Speaker 1: in the market that are economists, you know, there is 817 00:45:53,880 --> 00:45:57,960 Speaker 1: an academic need for having the right level of rates. 818 00:45:58,000 --> 00:45:59,799 Speaker 1: The reason is is because in the future, when you 819 00:45:59,800 --> 00:46:02,160 Speaker 1: do have a shock and you do need monetary policy 820 00:46:02,239 --> 00:46:05,080 Speaker 1: to correct for that shock, you need high rates to 821 00:46:05,120 --> 00:46:07,240 Speaker 1: be able to reduce those rates and correct for that shock. 822 00:46:07,640 --> 00:46:11,080 Speaker 1: And for the last ten twelve years, the FED has 823 00:46:11,200 --> 00:46:14,439 Speaker 1: not had that lever and it finally has the opportunity 824 00:46:14,680 --> 00:46:17,080 Speaker 1: to build that lever in and retain it if it's 825 00:46:17,160 --> 00:46:21,520 Speaker 1: careful about or precise about, you know, when it decides 826 00:46:21,520 --> 00:46:23,880 Speaker 1: to pivot or what it says around a pivot. So 827 00:46:24,000 --> 00:46:26,160 Speaker 1: I think that the FED is predisposed to leaving rates 828 00:46:26,200 --> 00:46:29,000 Speaker 1: high longer because of this academic need and because the 829 00:46:29,080 --> 00:46:32,319 Speaker 1: data supports it too. It's not like it's not like 830 00:46:32,320 --> 00:46:35,000 Speaker 1: the data supports a quick pivot or a significant decline 831 00:46:35,040 --> 00:46:37,360 Speaker 1: in rates at this point in time, and I would 832 00:46:38,080 --> 00:46:41,400 Speaker 1: argue that this is consistent with Howard Marx's see change memo, 833 00:46:41,760 --> 00:46:45,480 Speaker 1: that we are in a period of time where rates 834 00:46:45,520 --> 00:46:49,120 Speaker 1: should be expected to stay high for long, not longer, 835 00:46:49,160 --> 00:46:52,960 Speaker 1: but long, and in the context of the last forty years, 836 00:46:53,200 --> 00:46:56,760 Speaker 1: where rates are today are not meaningfully out of whack. 837 00:46:56,880 --> 00:46:59,680 Speaker 2: I'm so glad you brought that up, because when people 838 00:46:59,719 --> 00:47:03,400 Speaker 2: talk about, oh my god, seven percent mortgages, Hey, you 839 00:47:03,440 --> 00:47:06,000 Speaker 2: know that's about average for the past half century. Yeah. 840 00:47:06,000 --> 00:47:07,840 Speaker 1: The only time that it's not been average is the 841 00:47:07,920 --> 00:47:10,560 Speaker 1: last ten years. I mean, you could have gotten a 842 00:47:10,600 --> 00:47:13,080 Speaker 1: thirty year mortgage at three three and a quarter percent 843 00:47:13,080 --> 00:47:16,680 Speaker 1: at its lows, but that was unprecedented and I don't 844 00:47:16,760 --> 00:47:18,759 Speaker 1: think we will see that anytime soon. 845 00:47:19,160 --> 00:47:26,640 Speaker 2: I just read an interesting analysis from a mortgage research 846 00:47:26,640 --> 00:47:30,720 Speaker 2: shop that that surveys home buyers, and they said, five 847 00:47:30,760 --> 00:47:35,799 Speaker 2: point five percent is where all these golden handcuffs come 848 00:47:35,840 --> 00:47:37,600 Speaker 2: free again. All right, we're stuck in our house. We 849 00:47:37,640 --> 00:47:40,799 Speaker 2: have a four percent mortgage. We're not paying seven percent, Hey, 850 00:47:40,880 --> 00:47:44,240 Speaker 2: five and a half percent. We can think about moving. 851 00:47:44,719 --> 00:47:49,120 Speaker 2: What are the indications that you'll notice that this higher 852 00:47:49,200 --> 00:47:53,160 Speaker 2: Fed funds rate, the seven percent mortgage rate is starting 853 00:47:53,560 --> 00:47:55,200 Speaker 2: to stress the economy. 854 00:47:55,360 --> 00:48:00,200 Speaker 1: Yeah, it's a great question, and I don't have the 855 00:48:00,200 --> 00:48:03,520 Speaker 1: the ball, but I would tell you right now. Even 856 00:48:03,560 --> 00:48:07,200 Speaker 1: though the rates have been high now for twelve eighteen months, 857 00:48:08,320 --> 00:48:10,600 Speaker 1: and the mortgage rates have been out of the money 858 00:48:10,640 --> 00:48:12,600 Speaker 1: in terms of a refine now for the better part 859 00:48:12,680 --> 00:48:15,920 Speaker 1: of at least a year, we are still continuing to 860 00:48:15,960 --> 00:48:20,920 Speaker 1: see home builders sell new homes. We're not seeing as 861 00:48:21,000 --> 00:48:24,320 Speaker 1: much velocity in the sale of the secondary sale of homes, 862 00:48:24,680 --> 00:48:27,799 Speaker 1: but homebuilders are still selling homes, and that's because there 863 00:48:27,920 --> 00:48:31,280 Speaker 1: is a shortage of housing stock. There is a shortage 864 00:48:31,320 --> 00:48:34,600 Speaker 1: of multi family and single family housing, and the homebuilders 865 00:48:34,640 --> 00:48:37,640 Speaker 1: are able to charge a high enough price that they're 866 00:48:37,680 --> 00:48:41,440 Speaker 1: able to buy down the rate for their buyers. So 867 00:48:41,520 --> 00:48:44,680 Speaker 1: for now, at least, because of that shortage, it is 868 00:48:44,840 --> 00:48:49,959 Speaker 1: cushioning what would otherwise be probably a challenging picture economically 869 00:48:50,000 --> 00:48:53,400 Speaker 1: for the home building industry and just housing overall. Now, 870 00:48:53,760 --> 00:48:58,280 Speaker 1: there will come a point where the homebuilders will exhaust 871 00:48:58,360 --> 00:49:03,200 Speaker 1: their low cost basis. In Land, the cost of constructing 872 00:49:03,320 --> 00:49:05,600 Speaker 1: home is higher today than it was three years ago, 873 00:49:05,640 --> 00:49:08,640 Speaker 1: so there is real inflation and cost of construction, and 874 00:49:08,719 --> 00:49:12,160 Speaker 1: so those margins will shrink in home building. And I 875 00:49:12,200 --> 00:49:15,640 Speaker 1: think when you combine new home sales declining and new 876 00:49:15,680 --> 00:49:20,440 Speaker 1: home construction and multi family construction declining, that's when I 877 00:49:20,480 --> 00:49:23,560 Speaker 1: think the bite will be felt. But that's probably not 878 00:49:24,000 --> 00:49:27,200 Speaker 1: in the next twelve months, is my best guess. I 879 00:49:27,239 --> 00:49:30,799 Speaker 1: can't really point to a reason why, other than I 880 00:49:30,840 --> 00:49:33,560 Speaker 1: do think that there is this real shortage, and there 881 00:49:33,719 --> 00:49:37,640 Speaker 1: is that shortage is causing a material increase in the 882 00:49:37,719 --> 00:49:39,920 Speaker 1: in the rental rates for multi family. 883 00:49:39,640 --> 00:49:43,520 Speaker 2: Housing, so you're going right to a fascinating area. Some 884 00:49:43,640 --> 00:49:46,760 Speaker 2: of the pushback for higher for long, not even longer, 885 00:49:46,880 --> 00:49:49,560 Speaker 2: is hey, none of this stuff is rate based. There's 886 00:49:49,600 --> 00:49:53,320 Speaker 2: a shortage of single family and multi family houses because 887 00:49:53,360 --> 00:49:57,479 Speaker 2: of the post financial crisis underbuilding and moving to other 888 00:49:57,880 --> 00:50:01,960 Speaker 2: commercial areas. There's a shortage of labor that's keeping wages high. 889 00:50:01,960 --> 00:50:06,280 Speaker 2: We just don't have enough bodies. Arguably, the semiconductor shortage 890 00:50:06,320 --> 00:50:09,160 Speaker 2: is why car prices, both new and used have gone 891 00:50:09,239 --> 00:50:12,520 Speaker 2: up and have stayed fairly high. They just can't get 892 00:50:12,640 --> 00:50:16,439 Speaker 2: enough chips for this. What do high rates do for that? 893 00:50:17,120 --> 00:50:21,520 Speaker 2: And maybe higher for long gets resolved once all the 894 00:50:21,560 --> 00:50:23,200 Speaker 2: supply comes back online. 895 00:50:23,480 --> 00:50:27,560 Speaker 1: Yeah, I don't think higher rates help the bottleneck these 896 00:50:27,719 --> 00:50:30,799 Speaker 1: these issues that you that you pointed out, In fact, 897 00:50:31,080 --> 00:50:34,960 Speaker 1: they definitely hurt. And that's why I do think that 898 00:50:35,280 --> 00:50:38,600 Speaker 1: there is a reasonable chance of a recession, because I 899 00:50:38,600 --> 00:50:41,520 Speaker 1: think that the FED will all else being equal, keep 900 00:50:41,600 --> 00:50:45,160 Speaker 1: rates higher and tell that and tell something material breaks. 901 00:50:45,520 --> 00:50:48,719 Speaker 1: So I don't think that we're going to see the 902 00:50:48,760 --> 00:50:51,719 Speaker 1: de bottlenecking. I do think that, you know, if I 903 00:50:51,760 --> 00:50:53,400 Speaker 1: only had a dollar to bed on a recession or 904 00:50:53,440 --> 00:50:55,800 Speaker 1: not a recession, it would be for a recession really 905 00:50:56,600 --> 00:50:59,839 Speaker 1: next year. But again we're not macro forecasters here. It's 906 00:50:59,840 --> 00:51:04,160 Speaker 1: more about you know, it's more based on the conviction 907 00:51:04,239 --> 00:51:06,719 Speaker 1: that with or without a recession, we're going to see 908 00:51:06,719 --> 00:51:09,880 Speaker 1: elevated defaults. With or without a recession, we're going to 909 00:51:09,880 --> 00:51:13,520 Speaker 1: see a tightening of the availability of capital. And those 910 00:51:13,520 --> 00:51:16,680 Speaker 1: two factors, defaults and tightening availability of capital should at 911 00:51:16,680 --> 00:51:18,280 Speaker 1: some point cause a recession. 912 00:51:18,680 --> 00:51:20,760 Speaker 2: All right, I only have you for a limited amount 913 00:51:20,800 --> 00:51:24,319 Speaker 2: of time. Before I get to my favorite question, I 914 00:51:24,440 --> 00:51:26,680 Speaker 2: have to throw a couple of curve balls at you. 915 00:51:27,400 --> 00:51:31,600 Speaker 2: Starting with you mentioned grad school, and I wanted to 916 00:51:31,600 --> 00:51:34,760 Speaker 2: ask which grad school. So, in addition to a BA 917 00:51:34,920 --> 00:51:38,880 Speaker 2: in economics from Stanford. You have an MS in health 918 00:51:38,920 --> 00:51:44,080 Speaker 2: services from Stanford Medical School, a jd from Harvard Law School, 919 00:51:44,400 --> 00:51:48,080 Speaker 2: and an NBA from Harvard Business School. A what led 920 00:51:48,120 --> 00:51:52,520 Speaker 2: to so much school and b Stanford Medical School, Harvard 921 00:51:52,560 --> 00:51:55,160 Speaker 2: Law School. How does that apply to what you do 922 00:51:55,239 --> 00:51:56,160 Speaker 2: in the world of credit? 923 00:51:56,360 --> 00:51:59,040 Speaker 1: Yeah, well, I wish there I could say that it 924 00:51:59,080 --> 00:52:03,120 Speaker 1: was all intentional, and it's absolutely not. You know, I 925 00:52:04,080 --> 00:52:06,080 Speaker 1: entered college not knowing what I wanted to do. My 926 00:52:06,360 --> 00:52:09,359 Speaker 1: older brothers were surgeons or our surgeons, so I thought, 927 00:52:09,440 --> 00:52:12,920 Speaker 1: naturally I should be a surgeon. And then when I 928 00:52:12,960 --> 00:52:15,320 Speaker 1: was a freshman in college and taking pre med courses, 929 00:52:15,400 --> 00:52:19,120 Speaker 1: I visited my brother at the emergency room at USC 930 00:52:19,239 --> 00:52:22,960 Speaker 1: and Los Angeles doing trauma surgery, and I passed out 931 00:52:23,080 --> 00:52:27,759 Speaker 1: seeing him treat a bullet wound. And when I came to, 932 00:52:27,840 --> 00:52:29,799 Speaker 1: he said, You're not cut out for this, and he 933 00:52:29,880 --> 00:52:33,200 Speaker 1: was right. I am not cut out for being a doctor. 934 00:52:33,600 --> 00:52:40,080 Speaker 1: But I still valued healthcare, life sciences, biotechnology as important 935 00:52:40,120 --> 00:52:43,240 Speaker 1: areas of the economy and things I've just found naturally 936 00:52:43,440 --> 00:52:47,440 Speaker 1: interesting and curious, and so I kind of pivoted and 937 00:52:47,480 --> 00:52:51,560 Speaker 1: became effectively a health economics major. And so I was 938 00:52:51,560 --> 00:52:54,359 Speaker 1: an econ major, but my advisor was Mark McClellan, who 939 00:52:55,040 --> 00:52:57,760 Speaker 1: headed the FDA as well as the Centers of Medicare 940 00:52:57,800 --> 00:53:00,560 Speaker 1: and Medicaid at different points in his career, and so 941 00:53:00,640 --> 00:53:04,160 Speaker 1: he straddled being a professor at Stanford Medical School as 942 00:53:04,200 --> 00:53:06,880 Speaker 1: well as a professor in Stanford Economics Department. And I 943 00:53:06,920 --> 00:53:10,960 Speaker 1: thought that multidisciplinary approach to his career was interesting and 944 00:53:11,040 --> 00:53:14,040 Speaker 1: could be of interest in my career. So when I 945 00:53:14,080 --> 00:53:14,759 Speaker 1: decided to. 946 00:53:14,719 --> 00:53:15,360 Speaker 2: Go to. 947 00:53:17,440 --> 00:53:19,560 Speaker 1: Morgan Stanley and work in the M and A department 948 00:53:19,600 --> 00:53:22,360 Speaker 1: there in the late nineties, a good portion of the 949 00:53:22,360 --> 00:53:25,719 Speaker 1: deal floy I did or worked on was healthcare related, biotech, 950 00:53:25,840 --> 00:53:30,040 Speaker 1: pharma related, and I find that to continue to be 951 00:53:30,120 --> 00:53:32,239 Speaker 1: an area of interest for me. I'll get to the 952 00:53:32,320 --> 00:53:33,880 Speaker 1: law and law and business in the moment to. 953 00:53:33,960 --> 00:53:36,279 Speaker 2: Do them at the same time. The JDMBA, the JD 954 00:53:36,320 --> 00:53:37,239 Speaker 2: in the NBA I did. 955 00:53:37,320 --> 00:53:39,719 Speaker 1: After I worked at Morgan Stanley, I started at the 956 00:53:39,800 --> 00:53:42,480 Speaker 1: law school. But then that's around the time or right 957 00:53:42,520 --> 00:53:45,200 Speaker 1: after the time that the dot com bubble burst, and 958 00:53:45,280 --> 00:53:47,040 Speaker 1: so I thought, you know, now I was about as 959 00:53:47,080 --> 00:53:49,279 Speaker 1: good a time as any to stay in school, and 960 00:53:49,360 --> 00:53:51,959 Speaker 1: so I applied to the Business school to Harvard Business 961 00:53:51,960 --> 00:53:53,399 Speaker 1: School when I was a first year in the law 962 00:53:53,400 --> 00:53:56,400 Speaker 1: school and was lucky enough to get in, and that 963 00:53:56,480 --> 00:53:59,480 Speaker 1: was a fantastic opportunity to learn from a lot of 964 00:53:59,520 --> 00:54:02,320 Speaker 1: great class made, some great professors, a lot of guest 965 00:54:02,400 --> 00:54:04,920 Speaker 1: lectures that came in that were you captains and in 966 00:54:04,960 --> 00:54:09,480 Speaker 1: their particular industries. And learned a lot there. But when 967 00:54:09,520 --> 00:54:12,320 Speaker 1: I emerged from the j D M b A, you know, 968 00:54:12,360 --> 00:54:13,960 Speaker 1: I thought about what did I what did I enjoy 969 00:54:14,000 --> 00:54:17,040 Speaker 1: in school the most, And frankly, it was bankruptcy and reorganization. 970 00:54:17,160 --> 00:54:20,360 Speaker 1: And interesting tidbit. My bankruptcy professor in law school was 971 00:54:20,360 --> 00:54:25,400 Speaker 1: Elizabeth Warren, and you know, the same penetrating questions that 972 00:54:25,480 --> 00:54:28,040 Speaker 1: she asked to people, you know, in senate hearings is 973 00:54:28,080 --> 00:54:31,480 Speaker 1: the way I felt every day in bankruptcy class. And 974 00:54:31,480 --> 00:54:33,759 Speaker 1: and I learned a lot and and uh but and 975 00:54:33,840 --> 00:54:36,680 Speaker 1: that kind of left a mark. And and that's I 976 00:54:36,719 --> 00:54:39,160 Speaker 1: would say, you know, that experience was one of the 977 00:54:39,160 --> 00:54:42,960 Speaker 1: reasons why I gravitated towards distress debt as early in 978 00:54:43,000 --> 00:54:45,279 Speaker 1: my career when I joined Pequad in the Distress Group. 979 00:54:45,880 --> 00:54:48,600 Speaker 2: And you also serve on the advisory board of Stanford 980 00:54:48,640 --> 00:54:53,080 Speaker 2: Institute's Economic Policy Research group tell us a little bit 981 00:54:53,080 --> 00:54:54,160 Speaker 2: about what that group does. 982 00:54:54,560 --> 00:54:57,560 Speaker 1: So that group is an advisory group attached to the 983 00:54:57,600 --> 00:55:01,680 Speaker 1: Economics Department at Stanford and supports graduate research and undergraduate 984 00:55:01,719 --> 00:55:07,600 Speaker 1: research in economics for a variety of different types of studies. 985 00:55:08,480 --> 00:55:11,839 Speaker 1: It allows me to stay close to the university and 986 00:55:12,040 --> 00:55:15,200 Speaker 1: talk with you know, economists and academicians that you know 987 00:55:15,200 --> 00:55:17,600 Speaker 1: look at the world differently, and I think, you know, 988 00:55:17,640 --> 00:55:19,879 Speaker 1: it helped to give me a different lens. It also 989 00:55:19,960 --> 00:55:21,840 Speaker 1: helps me kind of stay in touch with some of 990 00:55:21,880 --> 00:55:24,239 Speaker 1: the other members of that advisory board that are in 991 00:55:24,280 --> 00:55:27,560 Speaker 1: the investment management industry and other industries that also help 992 00:55:27,920 --> 00:55:30,520 Speaker 1: kind of expand my universe. I think in investment management 993 00:55:31,840 --> 00:55:35,200 Speaker 1: it's a it's a negative if you become to my 994 00:55:35,320 --> 00:55:37,719 Speaker 1: opic and have too many blinders on. It's kind of 995 00:55:37,719 --> 00:55:39,239 Speaker 1: good to look to your left and to your right 996 00:55:39,280 --> 00:55:40,920 Speaker 1: and think about what other people are seeing. 997 00:55:40,920 --> 00:55:43,839 Speaker 2: And that's the latest and greatest economic research coming up. 998 00:55:43,880 --> 00:55:46,720 Speaker 2: So I'm sure there's there's some benefit from that, absolutely 999 00:55:46,719 --> 00:55:48,600 Speaker 2: all right, So in the last ten minutes I have 1000 00:55:48,719 --> 00:55:51,400 Speaker 2: let's let's jump to our speed round and run through 1001 00:55:52,000 --> 00:55:55,560 Speaker 2: our favorite questions we ask all of our guests, starting 1002 00:55:55,600 --> 00:55:59,960 Speaker 2: with what have you been streaming during the lockdown and afterwards, 1003 00:56:00,360 --> 00:56:02,480 Speaker 2: what are you either listening to or watching? 1004 00:56:03,040 --> 00:56:05,640 Speaker 1: Well, I'm absolutely listening to your podcast for sure, so 1005 00:56:05,840 --> 00:56:10,600 Speaker 1: thank you. But in terms of streaming now, I really 1006 00:56:10,719 --> 00:56:16,680 Speaker 1: like the more documentary oriented streaming content. For example, the 1007 00:56:16,719 --> 00:56:19,320 Speaker 1: Formula One, you know, Drive to Survive, looking forward to 1008 00:56:19,360 --> 00:56:21,799 Speaker 1: the next to the next series there. 1009 00:56:23,160 --> 00:56:27,000 Speaker 2: It's it's been really absolutely fascinating and it's caused all 1010 00:56:27,040 --> 00:56:30,480 Speaker 2: of America or half of America to become Half one fans. 1011 00:56:30,200 --> 00:56:32,399 Speaker 1: Absolutely well, and they're they're bringing a Formula One race 1012 00:56:32,440 --> 00:56:35,080 Speaker 1: to Las Vegas for the first time in November. And 1013 00:56:35,160 --> 00:56:38,800 Speaker 1: so from a just a business standpoint, seeing the impact 1014 00:56:38,880 --> 00:56:41,680 Speaker 1: that media can have on on a brand like Formula 1015 00:56:41,719 --> 00:56:44,120 Speaker 1: One that was under penetrated in the US, I think 1016 00:56:44,120 --> 00:56:47,920 Speaker 1: there there are there are lessons to be learned from 1017 00:56:47,960 --> 00:56:53,600 Speaker 1: a business standpoint by by focusing on content that is 1018 00:56:53,680 --> 00:56:56,120 Speaker 1: unrelated to finance. I mean, I know there are folks 1019 00:56:56,160 --> 00:56:58,719 Speaker 1: that love to watch billions or love to watch you know, 1020 00:56:58,880 --> 00:57:02,719 Speaker 1: or love to read about finance or invest in investing. 1021 00:57:03,239 --> 00:57:07,840 Speaker 1: I tend to not like watching shows or reading books 1022 00:57:07,880 --> 00:57:12,400 Speaker 1: about investing. I like kind of going the opposite direction 1023 00:57:12,560 --> 00:57:16,800 Speaker 1: and spending time with content that is completely unrelated to 1024 00:57:16,840 --> 00:57:17,880 Speaker 1: my life, right. 1025 00:57:17,760 --> 00:57:19,680 Speaker 2: You don't want to be a foot wide and a 1026 00:57:19,720 --> 00:57:23,200 Speaker 2: mile deep. It's going wide. It's always interesting. Tell us 1027 00:57:23,200 --> 00:57:25,600 Speaker 2: about your mentors who helped shape your career. 1028 00:57:25,840 --> 00:57:28,560 Speaker 1: Well, absolutely, Bruce Karsh is at the top of that list. 1029 00:57:29,680 --> 00:57:32,560 Speaker 1: You know, I've had great mentors over my life. And 1030 00:57:32,600 --> 00:57:36,000 Speaker 1: Mark McClellan was a mentor for me in college and 1031 00:57:36,080 --> 00:57:39,080 Speaker 1: again the multi disciplinary approach to his life opened my 1032 00:57:39,160 --> 00:57:44,120 Speaker 1: eyes to also being multidisciplinary and between law, business, medicine. 1033 00:57:44,880 --> 00:57:47,160 Speaker 1: And you know, we as a result of that multi 1034 00:57:47,160 --> 00:57:49,960 Speaker 1: disciplinary approach. You know, a year or so ago, we 1035 00:57:50,840 --> 00:57:55,360 Speaker 1: launched a very large life sciences lending fund, which I 1036 00:57:56,160 --> 00:58:00,200 Speaker 1: found personally gratifying because it gave me a conduit and 1037 00:58:00,240 --> 00:58:03,440 Speaker 1: it gave Oak Treocon to it to use our skills, 1038 00:58:03,520 --> 00:58:06,360 Speaker 1: our hard work in investing in a very difficult space 1039 00:58:06,440 --> 00:58:10,000 Speaker 1: in biotech and pharma to change the lives of people, 1040 00:58:10,040 --> 00:58:13,400 Speaker 1: to save the people's lives. And I think that's I 1041 00:58:13,480 --> 00:58:17,040 Speaker 1: think the pinnacle of how investing can be positive in 1042 00:58:17,280 --> 00:58:21,320 Speaker 1: impacting the community and society. So I'm very grateful for 1043 00:58:21,360 --> 00:58:23,240 Speaker 1: having done that. But I think I look back on 1044 00:58:23,280 --> 00:58:26,720 Speaker 1: my mentors and I think Mark for sure was one 1045 00:58:26,760 --> 00:58:29,360 Speaker 1: of them. And then you know one of my mentors, 1046 00:58:29,520 --> 00:58:31,920 Speaker 1: he was one of the first employees of Providence Equity Partners. 1047 00:58:31,960 --> 00:58:34,240 Speaker 1: His name is al Dobron. He was my associate at 1048 00:58:34,240 --> 00:58:37,960 Speaker 1: Morgan Stanley. He was the one that actually convinced me 1049 00:58:38,040 --> 00:58:40,760 Speaker 1: to delay going to law school and work in Morgan 1050 00:58:40,800 --> 00:58:42,720 Speaker 1: Stanley for two years and work one hundred hours a week. 1051 00:58:43,000 --> 00:58:47,200 Speaker 1: But it exposed me to an industry, a career path, 1052 00:58:47,720 --> 00:58:50,840 Speaker 1: the possibility of investing as a career path that I 1053 00:58:50,880 --> 00:58:53,280 Speaker 1: otherwise would not have seen. And so I think that 1054 00:58:53,480 --> 00:58:56,160 Speaker 1: when you look at your mentors, even though you know 1055 00:58:56,200 --> 00:58:58,959 Speaker 1: maybe time with them has been short, the impact can 1056 00:58:59,240 --> 00:59:02,280 Speaker 1: be material if you interacted with them at a point 1057 00:59:02,320 --> 00:59:05,200 Speaker 1: where their critical decision had to be made in your life, 1058 00:59:05,480 --> 00:59:06,960 Speaker 1: either personal life or career life. 1059 00:59:07,240 --> 00:59:09,840 Speaker 2: Really interesting. Tell us about what you're reading. What are 1060 00:59:09,880 --> 00:59:11,800 Speaker 2: some of your favorite books. What are you reading right now? 1061 00:59:11,880 --> 00:59:14,240 Speaker 1: Yeah, I'm reading Genghis Khan and the Making of the 1062 00:59:14,240 --> 00:59:16,240 Speaker 1: Modern World. I know that's not a new book, but 1063 00:59:17,880 --> 00:59:23,040 Speaker 1: I really like the books about periods in history and 1064 00:59:23,080 --> 00:59:27,600 Speaker 1: people in history that have made an impact that you 1065 00:59:27,720 --> 00:59:34,120 Speaker 1: can actually with withdraw or you can garner some lessons 1066 00:59:34,120 --> 00:59:36,439 Speaker 1: in life out of In the case of Genghis Khan. 1067 00:59:36,760 --> 00:59:41,400 Speaker 1: You know, there were some obviously some tremendous accomplishments that 1068 00:59:41,440 --> 00:59:45,320 Speaker 1: he made, but you know, I think that he probably 1069 00:59:45,320 --> 00:59:47,000 Speaker 1: did too much too fast, and it was not a 1070 00:59:47,080 --> 00:59:49,720 Speaker 1: lasting empire as a result of its as a result 1071 00:59:49,760 --> 00:59:52,280 Speaker 1: of its reach. So there are some takeaways for business 1072 00:59:52,280 --> 00:59:54,280 Speaker 1: that you get from there. And you know, I also 1073 00:59:54,400 --> 00:59:59,200 Speaker 1: enjoy kind of Soviet history as someone as an Armenian. 1074 00:59:59,400 --> 01:00:01,160 Speaker 1: The part of their, i Meanian history that was under 1075 01:00:01,200 --> 01:00:04,200 Speaker 1: the Soviet Union is interesting to me. So I've read 1076 01:00:04,240 --> 01:00:08,640 Speaker 1: Mikhail Gorbachev's I enjoyed reading Mikhail Gorbachev's autobiography as well, 1077 01:00:08,680 --> 01:00:10,960 Speaker 1: and you know that sort of thing. I'm not I'm 1078 01:00:11,000 --> 01:00:16,920 Speaker 1: not really into fiction or entertaining reading. It's more about nonfiction. 1079 01:00:17,960 --> 01:00:20,280 Speaker 2: I'm trying to remember who was the author of the 1080 01:00:20,360 --> 01:00:24,240 Speaker 2: Genghis Strickland con book. I read Strickland. 1081 01:00:24,280 --> 01:00:26,400 Speaker 1: Strickland is the one that I'm reading, but there could 1082 01:00:26,440 --> 01:00:30,320 Speaker 1: be another one. Jack Weatherford, Oh Weatherford, sorry Weatherford. 1083 01:00:30,120 --> 01:00:31,360 Speaker 2: So maybe it was the same. 1084 01:00:31,400 --> 01:00:34,400 Speaker 1: Maybe it was weather Yeah, Strickland was enemy at the Gates. 1085 01:00:34,480 --> 01:00:38,919 Speaker 2: What's astonishing about the whole Genghis con story is he 1086 01:00:39,120 --> 01:00:43,440 Speaker 2: like conquers most of Asian half of Europe by the 1087 01:00:43,440 --> 01:00:48,560 Speaker 2: time he's twenty five, some some crazy number just steamrolled everybody. 1088 01:00:48,600 --> 01:00:51,480 Speaker 1: He controlled more of the world in thirty years than 1089 01:00:51,520 --> 01:00:53,800 Speaker 1: the Roman Empire did in its entire history. 1090 01:00:53,880 --> 01:00:54,600 Speaker 2: It's astonished. 1091 01:00:54,680 --> 01:00:58,040 Speaker 1: Yeah, but I think that the stretch was probably too much. 1092 01:00:58,040 --> 01:01:01,760 Speaker 1: And eventually, you know, his children and descendants became cons 1093 01:01:01,760 --> 01:01:05,320 Speaker 1: as well, and they fought with each other, and there 1094 01:01:05,800 --> 01:01:09,400 Speaker 1: was therein was the creation of other countries. The takeaway 1095 01:01:09,400 --> 01:01:12,080 Speaker 1: for businesses, you know, if you want to build a 1096 01:01:12,880 --> 01:01:16,080 Speaker 1: sustained empire, you have to do it more carefully and 1097 01:01:16,080 --> 01:01:17,560 Speaker 1: maybe over a shorter period of time. 1098 01:01:18,120 --> 01:01:20,520 Speaker 2: Makes a lot of sense. Let's jump to our last 1099 01:01:20,560 --> 01:01:22,960 Speaker 2: two questions. What sort of advice would you give to 1100 01:01:23,000 --> 01:01:29,560 Speaker 2: a recent college grad interested in a career in distress, assets, finance, credit, 1101 01:01:29,640 --> 01:01:31,800 Speaker 2: whatever you would like to tell them. 1102 01:01:31,920 --> 01:01:33,640 Speaker 1: Yeah, I think it's a couple of things. And I 1103 01:01:33,680 --> 01:01:35,360 Speaker 1: know others have said this on your show before, but 1104 01:01:35,400 --> 01:01:39,280 Speaker 1: it's be patient. I think that that's very important because 1105 01:01:40,600 --> 01:01:43,439 Speaker 1: I always took the early part of my career as 1106 01:01:43,960 --> 01:01:46,400 Speaker 1: education or an opportunity for education, as much as it 1107 01:01:46,480 --> 01:01:51,760 Speaker 1: was employment. And I think my employers appreciated it because 1108 01:01:51,800 --> 01:01:54,760 Speaker 1: I wasn't trying to be a portfolio manager before my time. 1109 01:01:55,560 --> 01:01:58,200 Speaker 1: So I think that's that's the advice number one. Advice 1110 01:01:58,280 --> 01:02:01,320 Speaker 1: number two is remember that you have good If you 1111 01:02:01,360 --> 01:02:04,479 Speaker 1: have a job as a young person in finance, whether 1112 01:02:04,520 --> 01:02:08,320 Speaker 1: it's an investment, banking, or consulting or buyside sell side, 1113 01:02:08,800 --> 01:02:10,880 Speaker 1: you have it really good. You have it good in 1114 01:02:11,280 --> 01:02:13,200 Speaker 1: that you're learning a lot, you have the opportunity to 1115 01:02:13,240 --> 01:02:18,439 Speaker 1: learn from good people, smart people, and you're not there's 1116 01:02:18,480 --> 01:02:21,200 Speaker 1: a lot worse of a job that you could have, like, 1117 01:02:21,200 --> 01:02:23,880 Speaker 1: for example, medical residency. You could have gone to eight 1118 01:02:23,960 --> 01:02:27,240 Speaker 1: years of school, then make a fraction of what you're 1119 01:02:27,240 --> 01:02:30,840 Speaker 1: making after doing eight years of school, learning the same 1120 01:02:30,880 --> 01:02:33,160 Speaker 1: surgery over and over and over again, to be able 1121 01:02:33,200 --> 01:02:34,920 Speaker 1: to repeat it over and over and over again as 1122 01:02:35,080 --> 01:02:38,960 Speaker 1: a professional and not really innovating as much as you 1123 01:02:39,000 --> 01:02:41,960 Speaker 1: thought you would, whereas in finance you got you actually 1124 01:02:41,960 --> 01:02:44,120 Speaker 1: do have the opportunity to innovate, even in a place 1125 01:02:44,160 --> 01:02:48,640 Speaker 1: like medicine. And I think that that's an important way 1126 01:02:48,680 --> 01:02:52,760 Speaker 1: to kind of contextualize finance as a career versus other 1127 01:02:52,840 --> 01:02:55,600 Speaker 1: things where you have the opportunity to be flexible and 1128 01:02:55,640 --> 01:02:59,000 Speaker 1: you have the ability to make a change if you 1129 01:02:59,040 --> 01:02:59,640 Speaker 1: so desire. 1130 01:03:00,040 --> 01:03:03,040 Speaker 2: Huh. Quite interesting and our final question, what do you 1131 01:03:03,080 --> 01:03:08,120 Speaker 2: know about the world of distressed investing, credit debt today? 1132 01:03:08,240 --> 01:03:11,040 Speaker 2: You wish you knew twenty plus years or so ago 1133 01:03:11,080 --> 01:03:13,480 Speaker 2: when you were first ramping up your career. 1134 01:03:14,400 --> 01:03:18,680 Speaker 1: Yeah, you know, thirty or twenty years ago, of twenty 1135 01:03:18,720 --> 01:03:22,920 Speaker 1: five years ago. When I thought about a career, I 1136 01:03:24,320 --> 01:03:28,480 Speaker 1: thought that investing was monolithic. I thought that it was 1137 01:03:29,520 --> 01:03:31,840 Speaker 1: you know, you just kind of invest in stocks and 1138 01:03:31,880 --> 01:03:35,160 Speaker 1: that's about it, and you have to think about, you know, 1139 01:03:35,240 --> 01:03:38,040 Speaker 1: brands that do well and growth. But I think that 1140 01:03:39,400 --> 01:03:41,240 Speaker 1: what I know now is that And again this is 1141 01:03:41,240 --> 01:03:45,439 Speaker 1: consistent with some of my other comments today has been 1142 01:03:45,680 --> 01:03:51,200 Speaker 1: that if you do take a multidisciplinary approach, if you 1143 01:03:51,280 --> 01:03:56,920 Speaker 1: do marry investing and finance with knowledge of an industry, 1144 01:03:58,040 --> 01:04:02,720 Speaker 1: then you are able to generate or or or drive change. 1145 01:04:03,240 --> 01:04:06,080 Speaker 1: Change that it can be quite meaningful and positive change 1146 01:04:06,080 --> 01:04:09,440 Speaker 1: that could save lives or change lives. I never expected 1147 01:04:09,440 --> 01:04:11,800 Speaker 1: that I would feel that way about investing. I thought 1148 01:04:11,800 --> 01:04:13,800 Speaker 1: investing was just a means to an end. It was 1149 01:04:13,840 --> 01:04:16,480 Speaker 1: a means to just generate an income and live a 1150 01:04:16,680 --> 01:04:20,360 Speaker 1: live a comfortable life. I remember my father as a 1151 01:04:20,400 --> 01:04:23,320 Speaker 1: blue collar worker. He's a contractor, and he would always 1152 01:04:23,400 --> 01:04:24,960 Speaker 1: kind of tell me when I when I first told 1153 01:04:25,000 --> 01:04:26,640 Speaker 1: him I wanted to go into either law or business. 1154 01:04:26,840 --> 01:04:29,320 Speaker 1: He said, you know, you're not really building anything. You're 1155 01:04:29,360 --> 01:04:32,200 Speaker 1: not You're you're What good is that if you're not 1156 01:04:32,240 --> 01:04:35,800 Speaker 1: really building anything? And I think that I've realized that 1157 01:04:35,840 --> 01:04:38,960 Speaker 1: I am building something or I can be building something 1158 01:04:39,200 --> 01:04:43,000 Speaker 1: in finance. I didn't appreciate that before. I certainly appreciate 1159 01:04:43,000 --> 01:04:45,760 Speaker 1: it now. I do think it's a fantastic industry for 1160 01:04:45,840 --> 01:04:49,840 Speaker 1: those who want to do well by by doing good 1161 01:04:49,880 --> 01:04:53,080 Speaker 1: as well. I think that that is the I think 1162 01:04:53,080 --> 01:04:55,320 Speaker 1: there's an opportunity there for people if they have if 1163 01:04:55,360 --> 01:04:56,880 Speaker 1: they choose to go down that path. 1164 01:04:56,960 --> 01:04:59,640 Speaker 2: HM really quite interesting, Arman. Thank you for being so 1165 01:05:00,200 --> 01:05:03,600 Speaker 2: us with your time. We have been speaking with Arman Panosian, 1166 01:05:04,080 --> 01:05:08,400 Speaker 2: head of Performing Credit and incoming co CEO at oak 1167 01:05:08,480 --> 01:05:13,800 Speaker 2: Tree Capital Management. If you enjoy this conversation, well, be 1168 01:05:13,840 --> 01:05:17,200 Speaker 2: sure and check out any of our previous five hundred 1169 01:05:17,200 --> 01:05:21,439 Speaker 2: discussions we've done over the past nine years. You can 1170 01:05:21,480 --> 01:05:25,800 Speaker 2: find those at iTunes, Spotify, YouTube, wherever you get your 1171 01:05:25,800 --> 01:05:29,600 Speaker 2: favorite podcasts. Sign up for my daily reading list at 1172 01:05:29,680 --> 01:05:34,120 Speaker 2: Rid Halts. Follow me on Twitter at Barry Underscore. Rid Halts, 1173 01:05:34,480 --> 01:05:38,000 Speaker 2: follow all of the Bloomberg family of podcasts on x 1174 01:05:38,760 --> 01:05:41,880 Speaker 2: AT Podcasts, I would be remiss if I did not 1175 01:05:42,000 --> 01:05:44,680 Speaker 2: thank the correct team that helps put these conversations together 1176 01:05:45,120 --> 01:05:49,720 Speaker 2: each week. Paris Wald is my producer. Sam Danzinger is 1177 01:05:49,760 --> 01:05:53,600 Speaker 2: my audio engineer. Attika val Brun is my project manager. 1178 01:05:53,640 --> 01:05:58,640 Speaker 2: Sean Russo is my researcher. I'm Barry Ridults. You've been 1179 01:05:58,720 --> 01:06:02,040 Speaker 2: listening to Master's bit, Isn't This on Bloomberg Radio.