[REPLAY] Jonathan Lewinsohn – Diameter Capital Partners (Manager Meetings, EP.05)

On today's manager meeting, Kristen VanGelder speaks with Jonathan Lewinsohn. Kristen is Deputy Chief Investment Officer at Evanston Capital, a $4 billion hedge fund of funds whose CEO and CIO, Adam Blitz, was a past guest on the show. She's spent the last eighteen years at Evanston alongside Adam and the team. Jonathan co-founded Diameter Capital four years ago alongside Scott Goodwin and today manages a $6 billion credit-focused hedge fund alongside $1 billion in CDOs and a $1 billion drawdown fund. The two were colleagues at Anchorage Capital, and Jonathan spent some time at Centerbridge Capital as well before starting Diameter. Their conversation includes insights into the credit markets, Diameter's approach, and how it all comes together. Before we dive in, Kristen and I discuss how Evanston came to back Diameter on day one and how it fits into their portfolio. Learn More Follow Ted on Twitter at @tseides https://twitter.com/tseides?lang=en or LinkedIn https://www.linkedin.com/in/tedseides/ Subscribe to the mailing list https://capitalallocators.com/ Access Transcript with Premium Membership https://capitalallocators.com/signup Editing and post-production work for this episode was provided by The Podcast Consultant (⁠ https://thepodcastconsultant.com/https://thepodcastconsultant.com https://thepodcastconsultant.com/⁠ https://thepodcastconsultant.com/)

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• 0:01Ted Seides?

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• 2:47Ted Seides?

  I'm Ted Seides and this is Manager Meetings. This show is an exploration of investment opportunities. Through conversations with money managers conducted by one of the manager's institutional clients, we'll share the stories and strategies that attracted their attention and capital. You can learn more and join our mailing list at capitalallocators.com.

• 3:13Speaker 01

  All opinions expressed by Ted, guest hosts and podcast guests are solely their own opinions and do not reflect the opinion of Capital Allocators or their respective firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators, the firms of guest hosts or podcast guests may maintain positions in securities or managers discussed on this podcast.

• 3:35Ted Seides?

  On today's manager meeting, Kristin Van Gelder speaks with Jonathan Lewinsohn. Kristin is Deputy Chief Investment Officer at Evanston Capital, a $4 billion hedge fund of funds whose CEO and CIO, Adam Blitz, was a past guest on the show. She spent the last 18 years at Evanston alongside Adam and the team. Jonathan co-founded Diameter Capital four years ago alongside Scott Goodwin, and today they manage a $6 billion credit-focused hedge fund alongside $1 billion in CDOs and a $1 billion drawdown fund. The two were colleagues at Anchorage Capital, and Jonathan spent some time at Centerbridge

• 4:17Ted Seides?

  Capital as well before starting Diameter. Their conversation includes insights into the credit markets, Diameter's approach, and how it all comes together. Before we dive in, Kristin and I discuss how Evanston came to back Diameter on day one and how it fits into their portfolio.

• 4:38Ted Seides?

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• 5:18Ted Seides?

  Kristin, so this is a super interesting conversation, and I thought we'd just frame it out a little bit. It came up in the conversation that you were day-one investors with Diameter, and I'd love to hear how you got there.

• 5:31Speaker 02

  Yeah, sure. So fortunately, we knew both the co-founders of Diameter, Gudwin and Jonathan Lewinsohn, from their prior firm. Both top-tier credit and distressed debt shop with which Evanston has had long-duration partnerships as well. So we had some base knowledge of their former roles and responsibilities, their historical successes. We had numerous avenues to corroborate all of that through references on our network. So that level of familiarity really led us to engage with Diameter pretty early in their capital formation

• 6:11Speaker 02

  process. The other factor I would say is just that, in general, at Evanston, early-stage investing has been an emphasis of ours. We really think there's something to be said for the life cycle of a hedge fund, and we think it's important to identify and invest with talent early on. And when the manager is smaller, perhaps more hungry and motivated, and incentives are more aligned around performance-based fees, when they will probably comprise the majority of revenues. So both of those factors really led us to engage early on and strive towards underwriting a day-one investment.

• 6:49Ted Seides?

  With such a large pool of early-stage managers, how did you decide that this team was the one you wanted to back and not, say, other comparable early-stage funds?

• 6:59Speaker 02

  I'd say it was a few things that attracted us to Diameter beyond just pedigree, which we thought was phenomenal. First, we think that Scott and John brought really complementary skill sets to what they were trying to start. So Scott comes from more of a trading background, has more experience in performing credit, while Jonathan has more of a research focus and a lot of expertise in distressed debt and restructurings. So we thought that combination, and Jonathan talks about it a little bit too in the interview, of research and trading. We thought that combination could be a situation of one plus

• 7:40Speaker 02

  one equals three. And we also liked that with the two of them and the team that they assembled, they'd have the capability to invest long and short across the full credit spectrum. So from new issues and investment grade bonds, straight through to high yields and distressed situations. And I'd say we also really liked their preference to maintain a nimble portfolio. They talked a lot about searching for the best liquidity adjusted way to express their fundamental view and be able to dynamically allocate and change their portfolio, adjusting to opportunity sets and different market environments. So

• 8:24Speaker 02

  really, the thesis was that all of those factors together could lead to a more consistent return profile versus, you know, many other credit funds that tend to be just much more tied to the credit cycle.

• 8:36Ted Seides?

  You mentioned that you knew them from their prior firms and you had relationships with those prior firms. So how does that play out as you're an investor in these other firms and now you're looking at a spin out?

• 8:47Speaker 02

  Yeah, I mean, thankfully, we were able to leverage those very good relationships to have very frank conversations about their historical successes at those firms. We did lots of reference checking. And that's helpful because that's what it is with the new launches. You don't have a track record to go off of. What you have is maybe some deep Details of prior investments that they were most heavily involved with at their former firms. And by virtue of being invested there, maybe we had some context already of how those different names played out. But it is a lot about talking to people to verify what the manager is telling you about their own experience.

• 9:29Speaker 02

  So it was a lot, a lot of reference checking. We did a lot of meetings, of course, with Scott and John. And it was a lot, not just formal talking about the investment approach, but out of the office, getting them in informal situations to learn about their personalities because they were going to be co-founders. They were going to be co-portfolio managers. So seeing how the two interacted and getting to know them as people was an important part of the process as well.

• 9:56Ted Seides?

  And was there any tension on your side with their existing firms?

• 10:01Speaker 02

  No, I don't know that there was tension. I don't know that we kept them in the loop necessarily on how our due diligence was unfolding. But they were very gracious about doing reference checks with us and I think telling us what they truly believe unfiltered.

• 10:19Ted Seides?

  And did you stay invested with those firms as you added Diameter to your portfolio?

• 10:24Speaker 02

  We did.

• 10:25Ted Seides?

  As Diameter entered your portfolio and in the subsequent years, how did you think about position sizing and the fit within your portfolio of hedge funds?

• 10:33Speaker 02

  So I think you can tell by my comments, we really think of Diameter's flagship fund as an all-weather credit strategy. And with that in mind, we really view it as a ballast in our hedge fund portfolio. So we started out with what I'd say was like a mid-sized allocation. They were kind of middle of the portfolio for us. But we pretty steadily grew that position, both as our own confidence grew that our thesis was correct. And then it also grew the good way through performance. But today it's among our top holdings.

• 11:07Ted Seides?

  How did you think about entering a new fund with a mid-sized position as opposed to maybe a smaller position to see how it plays out?

• 11:14Speaker 02

  I mean, that's all about our approach. We construct concentrated portfolios. We Prefer to do all of our work upfront and gain a lot of conviction and invest in a size that really is going to matter to performance. We don't take toehold positions and see how it works over time. And, you know, we don't want to wake up with a portfolio with 80 managers, all of which we have less conviction in. And we think that's a great way to drive performance to the mean. So we try to stay concentrated and take a full position right off the bat.

• 11:47Ted Seides?

  Lastly, how do you think about their size? As you'll hear, you invested just a couple of years ago when it was a startup, and now they're multiple billions of dollars under management.

• 11:57Speaker 02

  So that's the thing is diameter is no longer an emerging manager. They're four years into their business. They've had a lot of success and they've grown. What's going to be important is how they can continue to perform at a larger asset level. They've stayed careful, I think, on capacity. Their main fund is now hard closed. So they're cognizant of, I think, the pitfalls of excessive growth. And Jonathan and Scott are both two of the hardest working, most competitive people I've met in what is a very competitive industry. So if there's anyone that can kind of continue to drive these good results, even at a larger asset size, I would bet on them.

• 12:40Ted Seides?

  Kristin, thanks. This is a really great conversation, and let's have at it.

• 12:46Speaker 02

  Hi, John. Good to see you.

• 12:48Speaker 03

  Hey, how are you? Thanks for having me.

• 12:49Speaker 02

  Let's just start with your background. And, you know, if I could take you back even further than the beginning of your buy side experience, and more to your path of how you decided to embark on a career in investing in the first place.

• 13:03Speaker 03

  Sure. Well, thanks for the opportunity to chat. Look, I think I was very lucky in that I had a parent who worked on Wall Street. I think a lot of people overlook how important it is for your past dependency, what your background was, and specific things you got from your parents. I had a father who was an equity research analyst. And we would talk about, when I would talk about business, and we would talk about stocks, it happened at an early age. It would be me starting an ice cream store with my friends. How do we finance it? Didn't necessarily help me make friends, but I certainly knew if I had any friends and we were going to start an ice cream store, how we would finance it from an early age. I had a mom who was just really focused on, you know, we didn't do a lot of puzzles in my house, we read. And so the combination of really obsessively finding information and reading and always

• 13:47Speaker 03

  from an early age, just thinking about investing, walking into a supermarket and thinking how they make money, is something that I was really lucky to get from my parents. I always talk to people when I interview them. I'm trying to pick up, is this something that this person is passionate about investing? They've been investing kind of as long as they've been walking? And it's not always, it doesn't have to be. You can be a great investor if you came to it at 45. But we're trying to figure out, has investing been something from your whole life? And I've been very lucky that I've been thinking about investing as long as I've been thinking. It was a background that's been very useful to this. And I went to College of Cornell. I studied a really broad range of things and I wasn't sure what I was going to do. I went to Morgan Stanley to do investment banking after college. It was, I was in the M&A group, I guess during, it's now three recessions ago, the 01 recession.

• 14:32Speaker 03

  And from there, went to Yale Law School. I, after law school, clerked for a federal judge named Richard Posner on the US Court of Appeals, who's a very special guy. He really invented the law and economics profession and field in many ways. Learned a lot from him, but also very lucky. We were a federal appeals court. Federal appeals courts don't get bankruptcy cases very often, or bankruptcy appeals are not a major part of the docket. We got a few. And it hit me that distressed debt investing, and we do a lot more than that at diameter, but distressed debt investing was a way to combine my passion for investing and my background and interest in law. And again, luck, I had friends who were tangentially related to the space. I had one friend in the space, they made introductions. Most people turned me away, frankly, because I was a bit of a weird candidate.

• 15:14Speaker 03

  I'd been an investment banker, I'd never been an investor, and I was lucky to be given a chance to become a distressed debt investor, Anchorage Capital, to take frankly, a risk on me, and thankfully it worked out.

• 15:25Speaker 02

  You never thought about being an attorney, actually practicing law, going to law school?

• 15:30Speaker 03

  I worked for a summer at a great firm, Wachtel Lipton. But what I saw over the summer made me realize that I wasn't going to be learning about the Broad areas of things that I wanted to do. So what I like about the way we invest in the skips ahead is we do a lot of things in credit that are in the shadow of the law. Right. Whether bankruptcy is coming, or there's going to be litigation, or what a document says. But that's not it. I also need to know what the price of oil is going to be. And I need to know what the regulation around oil is going to be, or I need to have a view on European GDP. Or how many sneakers a company is going to sell. And I really was attracted to a job that would allow me to do a lot more. And so that's how I ended up not practicing law.

• 16:09Speaker 02

  So let's talk about you have that first break into the hedge fund industry into distressed investing at Anchorage. What was that experience like?

• 16:16Speaker 03

  Everyone really needs to spend time in their life thinking about what makes me work hard, what excites me. And I had this realization while I was actually a summer associate at a law firm. That I was a very hard worker in school, always probably put in a little more effort than I needed to. And was not necessarily when I was working, when I was at Morgan Stanley, or I was at Wachtel Lipton, I did what I needed to do to get by. But I didn't have that intensity to kind of work as many hours as it took. And I realized that I needed to be in an environment that was flatter, that was more entrepreneurial. You know, a law firm, a bank, a private equity firm, they're ultimately paramilitary operations. And I wanted to be in a place where you could have an idea, no matter how old you are, or how experienced you were. And you could sit down with people who knew more than you, and they would either blast you to smithereens.

• 17:00Speaker 03

  Or they'd say, that's a really interesting idea. Let's go do that. And so that's really what I got when I got to Anchorage. Right now, it's a really successful, large asset manager. But at the time, it was a small hedge fund. One thing that really stuck with me and the way we manage things at diameter today is we really started there with what's going on in industries. This was early oh seven, and I was assigned to cover the auto industry, well before the explosion in the auto industry in oh eight, oh nine. My boss at the time, Tony Davis, said, I want you to figure out how many cars we should sell in the United States. And that feels like a bit of a crazy question, but instead of first going to look at General Motors, or Ford, or American Axle, or Lear. We first said, we built a model to think, how many cars should we sell?

• 17:39Speaker 03

  And I think being fresh to the space, an industry that had sold the same number of cars for many, many years, people had gotten a little ossified in their thinking. And so we developed a view that. We were overselling the number of cars that would be in a normal environment. And that allowed us to then do bottoms up cost work on auto companies and realize they were very, very exposed or fragile to any change in the environment. So we weren't predicting a financial crisis. We frankly weren't predicting the demise of the American auto industry, which happened soon thereafter. But that combination of industry top down work with bottoms up work on companies is something that I was taught there and really served me and that firm well in the financial crisis.

• 18:18Speaker 02

  What were some of the key lessons over that time there that you took with you as your career progressed?

• 18:25Speaker 03

  You have to always be obsessed with how the macro environment could change. We are all creatures that are very, I think, biased towards what's happening right now. And that makes a lot of sense because what's happening right now is what we know. And there's a huge amount of behavioral literature that a lot of people who listen to this podcast and others are familiar with. But what I realized was, I think, two things. One, you have to constantly be thinking about the downside protection in what you invest in. So instead of just always looking, a lot of people say, oh, I want to invest in something I can make 20% in. But you have to obsessively say, if the macroeconomic context changes, how much am I going to lose and how crowded is this investment going to be? And how differently are my other opportunities going to be that I need dry powder for? Even between frankly, when Bear Stearns went in March of 08 and Lehman went in September of 08,

• 19:10Speaker 03

  there was a period of time where assets seemed cheap because they were cheaper than they were. In fact, things like senior secure bank debt, which is the absolute top of the capital structure, which always, you know, or normally trades at par was trading in the high 80s. But by Christmas, it was in the 50s. And of course, that was a financial crisis. That's hopefully for all of us as citizens of the world, a once in a lifetime experience. But that obsessiveness over thinking about how much you can lose as much as you think about how much you can make was really kind of knocked into me by going through that. I think the other thing is that you really want to think about companies and processes as narratives. When things are going badly, the narrative is things are going badly. And people are going to assume that the equity is going to be wiped out and the junior debt is going to be wiped out. And maybe the senior debt is going to own the business.

• 19:53Speaker 03

  But as the economy improves, that narrative changes very quickly. And understanding investing. As narrative, not just for the long term about how a company will improve, or how, you know, Amazon will go last mile and transform the way we do things. But actually, within the macroeconomic cycle, how the narrative around a company will change is really, really important to security selection.

• 20:14Speaker 02

  And you at Anchorage, I mean, you successfully went short a lot of companies and then pivoted and went long, made a lot of profits on both sides, but not something that is easily done.

• 20:26Speaker 03

  Thank you. My, you know, my dad, as I mentioned before, was an equity research analyst, and he used to always tell me shorting is un-American. So I think talking about shorting, and particularly what a lot of equity market participants went through this year with GameStop, I think is not necessarily the easiest thing to do. But in our business, both where I started my career and now at Diameter, we spend a lot of time thinking about how technical transformation, policy volatility, and changes in cycles are going to change businesses and impact businesses. And so much time is spent on picking the winners, right? We all spend a lot of time thinking about Silicon Valley, venture capital, who's going to make, you know, the robotic butcher that's going to change all of our lives.

• 21:10Speaker 03

  But our job, in many ways, is also thinking about who are the losers? And so thinking through how a company loses and how their capital structure might not be able to withstand a very small change. Like going back to that autos example from a decade ago, when we did the work, we said, wow, we're selling 16 million cars a year in the US as of 2007. We don't think General Motors can make any money if we sell less than 15 and a half, right? We went to eight during the financial crisis. More recently, just understanding on Hertz, which was a name that, look, in February of 2020, Hertz was not primed to do well, when everyone was going to be grounded at home and there would be no transactions in used cars. Today, Hertz is primed to do very well because they have far fewer cars and people want to travel like it's, you know, the end of the world.

• 21:52Speaker 03

  Understanding the ability to be in different securities at different times of their cycles and really know the companies well is something that's great about credit and about having a mandate that you as our LP gives us to kind of be both long and short. But I will tell you, it is much more fun, much more rewarding to make money long. And to participate in a company adding value for a lot of people.

• 22:12Speaker 02

  I do want to get into diameter, but before we do, let's talk a little bit about your second stop in your buy side career at Centerbridge. Even more focused on distressed and restructuring as a specialty. You kind of went further into the distressed world before pivoting to come back and be truly flexible.

• 22:32Speaker 03

  Yeah, I think another lesson that I learned is I got to Anchorage knowing nothing. And eventually it succeeded, the firm really grew. We went from a small amount of capital to, I think, 13 billion in the main product, learned a huge amount. But I didn't spend any time managing my career. I just put my head down and worked. And then I was lucky to meet the guys who run Centerbridge, Mark Logley and Jeff Aaronson, really just excellent people. And I realized that part of having a career is learning different things. And diameter is more like this, that we first think about, how many toasters is this company going to sell? And do we think they can sell more toasters? And then later thinks about, might we use credit markets and distressed credit or stress credit? To buy this more cheaply than, say, the equity markets.

• 23:16Speaker 03

  Whereas Centerbridge, which is also an amazing firm, thinks more about, okay, what's the capital structure? Who's a winner, who's a loser in that capital structure? What's a document that is really has a lot of holes in it? And then later kind of thinks about, oh, is it a steel company or is it a sock company or is it a toaster business? And I felt it would be helpful to learn those skills. And what I'd say is, you know, you see the inside of a kitchen, you say, I'll never eat out again. Learning some of the unholy acts, distress, and I was at Centerbridge and then thinking about some of the things I owned earlier in my career. It was, I think, an interesting wake up call, but I also think it was generational a little bit. The distressed debt market, which is part of what we do at diameter now, really started because it was totally inefficient. No one knew really that much about bankruptcy.

• 23:59Speaker 03

  Bankruptcy advisors was a small group of people, particularly, you know, God help you if you were a, just had claims against a bankrupt company. You didn't know what to do with them. And so a group of really smart firms in the 90s and the early 2000s who created businesses in understanding that and understanding that there was a word in one document that was different than a word in another document, and that could be worth huge sums of money. That market became more efficient. And so you've had to not only focus on the liability side, all firms, no matter Anchorage, Centerbridge, all the others, they've all kind of over time morphed to you really need in this competitive world to understand assets, understand liabilities, and get everything right in order to make money. And it's been interesting in my career to watch kind of the maturation of the industry. And frankly, and this is part of why we do a lot more than distressed at diameter,

• 24:43Speaker 03

  really kind of the secular decline of the distressed debt industry. Because if you think about what makes distressed interesting is you want to buy a business that's going through a difficult time for a short period. Good company, bad balance sheet. That just doesn't exist as much anymore. It's because credit is readily available. We're obviously now in an incredibly strong economy. We are blessed most of the time to be in growing economies. And more and more, the businesses that are in distress are not things that are pies that shrunk for a little and then are ready to grow. They are pies that are always shrinking. Maybe a coal company, for example. And if you're fighting for pieces of a pie that are growing, it's a lot easier than fighting for pieces of a pie that are shrinking. And we think that most companies that end up in distress outside of recessions are bad businesses.

• 25:27Speaker 03

  And generally, investing in bad businesses is not a good business for you. And so that's why in a year like 2020, where there was sadly for the world, a lot of distressed, we got very involved in rental car companies and airlines and cruise lines. But for most of 17, 18, 19, we were just involved in a few situations on the sidelines and spending more time thinking about performing credit and other areas of the credit markets.

• 25:49Speaker 02

  Maybe you could talk a little bit about meeting your partner and co-founder and diameter Scott Goodwin. You worked together at Anchorage and how the two of you kind of came together, what your vision was in founding diameter, what you thought you could do differently. I mean, most investors really think of credit, I think, as highly cyclical, especially distressed investing. But diameter, you think of as truly all weather. And so how you set out to be able to perform in all different types of market environments?

• 26:17Speaker 03

  We met at Anchorage. He had run the high yield business at Citi. He came to Anchorage in 2010. And I'll let you in on a dirty secret. In most instances, traders and analysts do not like each other. Or at the very least, exists with like a cold piece. Because the traders believe that the analysts are eggheads who want to work at a think tank and can't really make money. Or can't really, if they make money, they make money over the long term. They can't think about shifting around, etc. And the analysts think that the traders are fast money guys who just talk to their friends and don't really think deeply about businesses. And as a result of having those different type of personalities, usually the firm that they're at prioritizes one or two of those priorities or skillsets.

• 27:01Speaker 03

  And therefore, there's tension and one is elevated above the other. At Anchorage, Scott and I were very lucky to work at a place that really wanted both, really wanted to see both skillsets and really prioritize both skillsets to reflect the skillsets of the founders of the firm. That was one. But two, I think that when Scott was brought in to create a performing credit business, they thought that I would be focused, at the time I was on the investment committee, I was spending a lot of time on our stress and distress positions in North America, and Scott was going to build a performing credit business. I think they thought we would maybe meet each other in the bathroom, maybe at the kitchen. We wouldn't really engage that much, but we liked each other. More importantly than that, we realized that Scott is someone who can tell you why a bond trade where it does, where am I trade tomorrow, how people sell it, when they sell,

• 27:45Speaker 03

  where they'll sell through, what will cause them to sell, all those technical dynamics. But he starts with, what's the industry, what's the company? And on top of that, I think he realizes that if you know a lot of market technicals, what you're really doing is you're doing reversion to the mean trading. Something is down a few points, you figure it'll go back up. Something is up a few points, you think it'll go back down. That happens most of the time, but then it doesn't. And when it doesn't happen, you explode. And a lot of trading-only focused businesses eventually explode when the reversion to the mean doesn't work. Particularly now where there's so much technological change that formerly stable industries become very different in a short period of time. And so, his insight was, if I can have research to think about performing credit, the way they think about stress and distress and equity, and really only provide liquidity to the market when I like the company.

• 28:29Speaker 03

  That will put me in a totally different league. And I'm someone who spent a lot of time in stress and distress. I was head of research at Anchorage for North America and thinking deeply about the fact that I didn't like distressed. I thought distressed was episodic, that I wanted to do it occasionally. I wanted to do it when we saw a cyclical situation, but not have to be figuring out how to get a little bit of money out of a coal company or a declining Yellow Pages company. We really formed a partnership there. We joked we were middle management, below kind of the guys who ran the firm, to day-to-day kind of allocate the analyst's time and build a integrated performing credit and distressed business. As you mentioned, I left Anchorage in 2013 to go to Centerbridge, but we never stopped talking. In fact, this is, I guess, an interesting thing to come out with now, but it's been enough time. I think statute of limitation is over.

• 29:13Speaker 03

  You know, when you leave a firm, it's not that easy to just call back. And everyone sits on a trading desk and your name is screamed out across the desk, so-and-so's on the phone. And I wanted to talk to Scott. I miss Scott's market insights. So Scott is a very big ACC basketball fan, and I'm Jewish. And so, and we're the same age. We were class of 97 in high school. And so, if you're our age and you have those maybe backgrounds and interests, you will remember that Tamir Goodman was on the cover of Sports Illustrated sometime in the late 90s, as maybe was the Jewish Jordan or the next thing. He got a scholarship to the University of Maryland. And so, I knew about it, Scott knew about it. And so, I would routinely call to Anchorage from Centerbridge as Tamir Goodman. We both live in lower Manhattan and we would meet. There's a really good brunch place called Bubby's in Tribeca, and we have kids around

• 29:58Speaker 03

  the same age. And we would meet most weekends for brunch with our kids. In fact, a conference room in our office now is called the Bubby's Conference Room, and talk about credit and talk about markets and talk about what we thought we could do. And kind of to bring your question full circle, we were ready by 2016 to do this in our careers. We thought we had the experience and the knowledge and the ideas to manage the portfolios, to run a business. But that really doesn't matter. You need to offer something to LPs. There's plenty of people who are ready to do something that LPs don't need any more of. The thing that we realized is that if we took our skill sets and we said, "Look, credit is a place where there is discontinuous liquidity." So if I want to go buy my Microsoft stock, it's pretty easiest to buy and sell Microsoft stock.

• 30:42Speaker 03

  And liquidity changes as you go through different levels and sizes of equity. And I am by no means an expert in equities, particularly in equity technical trading. But credit really is an old school way where traders talk to each other or direct over instant message over Bloomberg to make trades and to make live markets. And we realized that there weren't firms that were small enough to be nimble in that environment, to be able to really move the book, participate in new issue markets, be able to short when appropriate, but also large enough to be relevant, relevant to the banks, relevant to restructuring advisors, and putting that together in a package, the large enough to be relevant, small enough to be nimble, in a package that provided investors that kind of across credit experience. And so that's what we set out to do.

• 31:27Speaker 03

  This was in early 2017. And the idea really is, and what we kind of think about as investing is, we have a very flat organization. Scott and I work directly with our analysts who know the industry really well. Again, I made the joke earlier that a lot of private equity firms are paramilitary environments. They have to be. The different levels, the associate, the vice president, the principal, the partner, they need to be doing different things in a deal. We think that in hedge funds, you really need a flat organization. You need portfolio managers who are really engaged, there every day, pouring through materials. And you need to sit with an analyst who knows something about the industry and the company. And you combine that judgment and that portfolio construction with an analyst who knows things about the company, and you have something that really works. And so we've endeavored to put that together here. When you think of what we do is trying to be relevant in credit markets,

• 32:12Speaker 03

  investing across credit markets, a lot of investment grade, a lot of high yield, a lot of stressed, a lot of distressed, but doing it in a manner that we don't want to take over companies. We think that too many hedge funds who did credit thought that all of a sudden they were in private equity and they could improve businesses. We don't think that that's our skill set. Frankly, we think if we think we can improve it, it probably means that other people who really could failed at it and it's not a good point. And that kind of breadth of doing it within credit is really what is our hallmark.

• 32:40Ted Seides?

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• 33:23Speaker 02

  Yeah, that flexibility to invest across the full credit spectrum. I think often you hear managers talk about it, but it's more difficult to implement in practice. You tend to see, especially as firms get bigger, individuals on the team start to specialize within different credit products. And it depends on team structure and incentives, whether you're able to flexibly allocate capital across and between those teams. So that's something I think that's been unique about Diameter. You could use even like the last year plus as an example of how you were able to maneuver the portfolio very quickly in a market backdrop that obviously changed at the drop of a dime.

• 34:08Speaker 03

  What's interesting about hedge funds, I mean, in many ways hedge funds are a dirty word. And partially that's because hedge funds have failed to deliver over the long term in what the promise was, which was some kind of a smooth return, some kind of hedge, some kind of volatility protection. And in many ways, what a hedge fund is supposed to be is a macro product, is saying to investors, we think that in different environments, ups and downs, we don't have to be that different in what we return, because that's how we are constructing a portfolio. And I think many hedge funds across different types of asset classes. Instead, kind of fell in love with this notion is I am a stock picker, or I am a long credit picker, and I'm going to find the trend and I'm going to absorb volatility. But a hedge fund at its core is not supposed to absorb volatility.

• 34:49Speaker 03

  It's supposed to be able to trade volatility and make money even in periods of volatility. Going into the COVID crisis, which of course, none of us knew was coming, we had really prized a few things in our credit portfolio management. First, keep a very liquid book. It's something I really learned at Anchorage too. When markets get very frothy, illiquids become in vogue and they end up not returning a lot. If all of a sudden you're being pitched a lot of 9% illiquids, you maybe really want to realize that you're creating a situation where if the world changes, you're going to have no flexibility in your portfolio. So really, we kept the book very liquid. Secondly, we hear from a lot of people that they want to concentrate. They always want concentrated portfolios. You want to, especially in an expensive market, you want to have big positions. It's hard to find something good.

• 35:32Speaker 03

  Well, guess what? Everyone is smart. Everyone has the same resources. If you find something in public markets, the odds are a few other people who have the same background as you, the same education, the same Bloomberg subscription, can listen to the same podcasts, have found it too. And so what we think is that generally analysts are very bad at thinking about downside protection. And so if, for example, let's use a stock because it's just easier. An analyst comes to a portfolio manager and says, hey, I think that this stock trades at 30, it's worth 50. Say, wow, it's amazing. I can buy something at 30, it's worth 50. So you say, well, what happens if you're wrong? Well, good news, really good news. There are the comps trade at 27, M&A deal was on the table for 26, and we could do a dividend recap, worst case, and we'll get 22.

• 36:13Speaker 03

  If you look at that up-down, and you say, I lose between 3 and 8, and I make 20, I'm going to make that a big position. Well, it turns out that if the cycle changes while you're in there, there's no M&A, the comps get destroyed, there's no dividend recap, every other manager had the same position with the same thesis, and they all go and sell, and you have to exit the thing at 14. And so we really believed that we wanted to have, particularly in a bull market, a less concentrated book, which requires us to have a bigger analyst team. It requires Scott and I, you know, we review the portfolio every Sunday night, going through it really in detail to make sure that we can have a lot of positions and not necessarily have five, six, seven, eight percent positions. So why does that make sense for how we reacted to COVID? We came into 2020 very bullish. We were probably as long as we'd ever been on a beta adjusted basis.

• 36:58Speaker 03

  We thought that it would be the year of Trump was running for reelection, the trade wars would ebb, industrial production was really ready to pick up. We really liked some energy situations. And then Scott and I actually went away together to celebrate his 40th birthday at the end of January with our spouses. And they shut Wuhan while we were there. And we realized two things. A, we knew Wuhan because we'd been so focused on the trade wars the year before that we'd become very in tune with the important areas in China for trade and for production. And they shut Wuhan and 5 million people had left, they said, before they shut it. And our take was if this was bad enough to shut Wuhan in this really important recovery year, but 5 million people already got out, people are not taking this seriously enough.

• 37:40Speaker 03

  And so we got home and we sold a lot of our lungs, particularly things in very cyclical industries like energy and travel. And it's part of, again, having a liquid book. We were not hired to do private equity. We were not hired to create idiosyncratic illiquid securities, which a lot of people who have our mandate got into because there was not a lot to do. Instead, we trade a lot. We'd use velocity of trading the year before. We don't use a lot of borrowed money. We were able to really move the book. And then we got into February. We had sold a lot of our lungs. We had moved our grosses down and our nets down. We like to move our gross exposure down as well when things are about to get choppy. And the world, you know, still wasn't really recognizing the threat.

• 38:22Speaker 03

  You had the cruise ship that was marooned, but by mid-February markets were rallying and we could put on shorts of travel-related businesses that have negative working capital. So this is a little wonky, but hotels you pay or airlines you pay before you go. That means if their revenue goes away, the opposite happens. They burn a huge amount of cash when revenue goes down. So we were in a position to be shorting many of these businesses at between 85 and par. This is in the middle of February. Sure enough, two weeks later, by the end of February, the world's on fire. Let's say, again, this is a little esoteric, but let's say we were shorting five-year bond in the middle of February at 90 in a travel-related company. By the end of February, that bond has traded down to 50.

• 39:05Speaker 03

  And then we're being able to be in a position to short the one-year bonds or the one-year credit default swaps of those companies at similarly high prices and then see them collapse a week later because all of a sudden liquidity in the market, everyone was afraid every company in travel would go bankrupt. And so we really were able to take what was a book that was very long and bring it actually net short into March by having liquid longs, having a view that the market was mispricing risk in particularly in the travel industry. And so, you know, we made money in January 2020, we made money in February 2020. And then in March, we realized that the federal government response to this was going to have to be enormous. And we thought that there was a lot of signs that the Federal Reserve would buy investment-grade

• 39:50Speaker 03

  bonds in the next crisis. And so we started buying investment-grade bonds in middle of March. So again, in our business, a lot of firms want to do distressed because they think it's an interesting way to control businesses or to buy things cheaply. Our view is at the beginning of a sell-off, the worst thing you could do is buy the lowest-dollar price, crappiest companies. If you were a company that traded, let's say you were an oil company that was trading at 75 in January of 2020 and was trading at 25 in March of 2020. That's not interesting to us because you're a really bad business, most likely. Instead, what we want to do is we want to, in the beginning of a sell-off, buy the highest quality. So we spent March buying investment-grade bonds, McDonald's bonds, down 20 points,

• 40:32Speaker 03

  Starbucks bonds, down 20 points, and buying software loans, loans of companies that do enterprise software that even if there was a type of recession we thought that could come, would never miss a payment, again, in the mid-'70s to low-'80s. And we were able to therefore turn the book again by late March and be long the highest-quality things I've ever been long in my life by a long shot and take advantage of what we thought was going to be a real policy-oriented turnaround. And the last thing I'd say- Is that again, last year was an unprecedented year. We have a new issue business at diameter. So we look at every single high yield new issue. Many of the investment grade new issues. We have traders who are native to those markets. We never want to be a tourist in a market.

• 41:13Speaker 03

  And so all of a sudden, last April, instead of companies getting rescued by large private equity style firms writing rescue checks with warrants and all these exciting things. Instead, you had the first ever syndicated rescue market where thanks to the Fed, banks brought rescue deals for companies to sell to mutual funds and hedge funds. And because we are native to that market, this became the best opportunity just for alpha that we'd ever seen, you know, buying investment grade bonds at spreads that really had not been seen in real companies of consequence from Wells Fargo to Cisco Foods in a period of real intense stress. We were able to be served with amazing allocations because again, our model is don't be a tourist, know the people in every space.

• 41:57Speaker 03

  When that space gets interesting, investment grade became the most interesting place in the world in April, May, and it led to outsized returns. So that is a, I guess, characteristically long winded answer to your question, but it was all about seeing COVID early, which will not always do. There'll be plenty of things in the world that happen that we'll miss, but having a liquid book, being focused on trading, being native to a lot of markets and being willing to think about our hedge fund as a product that's supposed to produce returns all the time as opposed to something that's supposed to absorb volatility.

• 42:25Speaker 02

  It was obviously a special year. I know you even wrote an internal blog, sort of a COVID tracker during the pandemic, which we only saw one entry, but we thought it was so impressive. I mean, do you use that method of writing down your thoughts or sharing written thoughts with the team? Is that consistently part of your process or was that just really like this is a special situation?

• 42:49Speaker 03

  I did write an internal COVID blog that I guess some of our LPs saw. Still exists in the ether. It was not a normal thing. We believe that you can't just outsource your knowledge of this to Twitter or to equity research or to newspapers. If you're going to commit like the holy capital from your LPs, you need to really understand Going on and why I think I have the best job in the world is whether there's a global pandemic or there's a terrible oil spill or there's an election in France, we have to be expert in it. And so we endeavor to really track COVID very closely, develop our own ways to do it. And writing about it was the way for me to summarize to the team what was going on because it was just so enormous. Stop doing it at the end of the year because once the vaccines came, COVID obviously still exists.

• 43:34Speaker 03

  And there've been many really tragic deaths since November, but COVID has like a market. Think of market importance really kind of shifted to the backseat. We write a letter every quarter. We put a lot of time and effort into it. It's probably too long, but writing is a very helpful thing to boil down very complicated things to yourself and to prove to yourself that you're right, because when you write, you usually need sources. How do I know this? Where do I know this from? And in that COVID blog, we had links to everything that we got it from, every academic paper. And what you don't realize is most of the stuff in your head is BS. Most of the stuff in your head may be a little wrong in the way you remember it. Everything is based on your biases. We're obsessed with getting that. And so if you have to cite a reference that you do when you write, it really makes sure that you're not bogus. And so that's a little bit why we do it.

• 44:18Speaker 02

  I mean, in a more normal year, how would you describe the relative importance between the macro views, the thematic views versus the pure bottom up research and security selection?

• 44:30Speaker 03

  At the end of the day, you want to invest in good businesses and you need to really understand the businesses. And as you pointed out, most of the time macro is boring. We think it's crucial to always have a really deep macro view. We're not a macro fund. We don't make currency trades. We don't make rates trades. We think that companies operate in the ecosystem of the macro world. So if someone comes to me and says, I find department stores interesting. I want to buy the stock or bond of a department store or I want to sell the stock of the department store. They can't come to us and say, oh, I think same store sales will be up 4%. That's why I'm bullish or that's, I think they'll be down 4%. That's why I'm bearish. It has to be here's personal consumption expenditure in the economy. What is the percentage of that personal consumption expenditure in, let's say jewelry and apparel?

• 45:15Speaker 03

  What percentage of that is done? At department stores. And then what's the share of those various department stores? And we're obsessed with putting our companies in macroeconomic context. So you really need both. And I think a real comparative advantage for us is always thinking about what's going on in the economy. What are all the trading technicals in the market? We understand who's buying, selling and why they're doing it. And really kind of merging that portfolio management and trading together. We really partner with the banks. So they can call Scott and he's making the trades. And they know that he can give them an answer right away. Because we know a lot of names and we know the industries we like and we know the industries we don't like. And that partnership allows us to move quickly.

• 45:59Speaker 03

  And ultimately, everyone's smart, cycles are short, speed of capital is crucial. You can't be fast and smart if you're not thinking about macro and micro.

• 46:08Speaker 02

  Yeah, we've talked about that speed of execution as a source of alpha. You need to have breadth of research to do that well. And you've built out your team now, but when you were first starting the firm, obviously you got to start somewhere. The team was smaller, assets were smaller too. But was that a concern of yours? How did you get over that hump of not having that breadth initially?

• 46:31Speaker 03

  When we were hiring those analysts, we were in a windowless room in the middle of Manhattan in a rental office space that advertised itself as cheaper than a WeWork. It really wasn't the place to be recruiting an analyst team. And we found, I think, really strong analysts, most of them are still with us. What was interesting, a real learning to me though, is that the type of analyst, the type of person who wants to join a startup is very, very different than the type of person who I may have interacted with at Anchorage and Centerbridge, which were established firms. From the beginning, Diameter launched with about a billion dollars. We ran a very process-heavy business because we're obsessed with this preparation that you're hearing over and over. Earnings previews and earnings reviews. Once a year, analysts have to go offsite and produce a primary data-only view on their industry. Very intense watch lists.

• 47:14Speaker 03

  We do a goals for the week every Monday with every analyst. Not everyone who wants to work at a hedge fund wants all that process. They kind of a little bit want, if I'm going to a startup hedge fund, I maybe want to like work on a credit in the morning and help you move the desk in the afternoon. And that's a great personality. Trade, but it doesn't always work for a very, very process-heavy firm like we are. With some people, we realized early on that we'd mutually made a mistake. And I'm proud that people who have worked here have gone on to get really, really great jobs. And I don't think we've had people here who aren't talented. But in any business, it takes time to think through the best team for you. And look, my partner Scott and I, we're both really demanding in different ways. So we're really grateful that we have what we think is, across the board, the strongest research and trading team around.

• 47:53Speaker 02

  With your emphasis on liquidity, you've remained very selective on the distressed situations you've gotten involved in. When you think of the ones that you have done, what has been about those situations that's kind of met that very high bar? The willingness to take on some illiquidity in an individual position?

• 48:12Speaker 03

  Sure. I mentioned before a little bit that we think that the distressed debt markets are broken in the sense that it can be in and of itself a huge asset class. And the reason distressed is broken, and this is a way of kind of telling you what we will do, the things that don't fail these tests, is we used to have long, real cycles. I really think like part of being a Federal Reserve governor or being in any central bank used to be, well, you know, a recession is an inevitable part. It's part of the economic cycle. Now, I think people who work at central banks want to avoid recessions really at all costs. And that means they throw everything at it to avoid it. And when we're in it, we just saw unprecedented act after unprecedented act. So cycles are short, so you're not going to have a chance to buy companies that frequently. And on top of that, distressed businesses are generally value stocks or value businesses,

• 48:56Speaker 03

  companies that are going through a problem. This is a podcast, so you can't see charts. But if we did put up a chart, it'd be very easy to find one where you saw how growth has totally just trumped value. And there's really nothing worse to public equity markets than a reorganized equity that's less liquid than a regular equity that just went through bankruptcy and is a value stock. So through that lens, we've realized that we really only want to invest in distressed when the company is involved in some kind of cyclical problem. And by the way, most of the time, there's going to be a cyclical and a secular. Earlier in my career, for example, I invested in a textbook manufacturer. This was after the 08, 09 recession. States were in bad shape after that recession, and they didn't buy textbooks. And so that was very bad for textbook manufacturers.

• 49:41Speaker 03

  If you fast-forwarded to 2013, it had been a number of years. The recession was really over, states were able to buy textbooks, and the common core was being rolled out. And so we thought, wow, now will be a good cyclical time to buy textbooks, even though we knew digital textbooks were coming down the pike and eventually would have its problem. And so that investment worked for a while because they had great 13, 14, 15, but eventually the secular caught up. We really want to focus on investments where A, it's cyclical, and B, we can get out before the secular takes over. And so what that has really meant is during COVID, rental car companies like Hertz in the United States and Europe Car in Europe, LatAm, which is an airline in Latin America that filed for bankruptcy in the United States, cruise lines that we thought would eventually come back,

• 50:26Speaker 03

  hotels that we thought would eventually come back, and really avoiding, you know, for example, during the crisis, JCPenney filed for bankruptcy. They would have filed most likely anyway. Few years later, Intelsat filed for bankruptcy. They would have filed for bankruptcy anyway. Those are not situations that we got ourselves involved in. The other thing that I think has to be a little bit of the hallmark, the way we approach it is, for a long time in distress, you wanted to be the biggest guy because the biggest guy could control the process and really get goodies for him or herself from the process. An extra kiss of equity from what you were owed or a backstop fee. These are terms that will be familiar to people in the distressed investing community. What it's come to mean is, A, like in anything that's been competed down, there are more big firms who can offer it, and so it's less valuable.

• 51:10Speaker 03

  And secondly, you end up with a position you can never exit because you own 20, 30% of a tranche. So we want to be in a position where we can be influential in the bankruptcy. We can serve on an ad hoc committee, but we can trade it afterwards and we can maybe get out of it once the bankruptcy is over and not have to sit in reorg equity. We want it to be cyclical. If it's an industry that is going through long-term problems like retail, we want there to be something else other than just same-store sales were down. So in retail, we invested in Claire's stores, which we really liked the fact that even though mall traffic was down a lot, we were able to buy Claire's senior secured debt at 50 cents on the dollar in 2017, and they have the highest market share in the country by a long shot in ear piercing. You cannot yet do ear piercing online. And on top of that, it's a store that has real niche appeal

• 51:53Speaker 03

  in the sense that so many American women, maybe the first thing they ever did was buy something in Claire's. We got really involved in PetSmart because they own Chewy.com. But generally, we stayed away from retail that was suffering because brick and mortar retail is oversupplied. So it's cyclical. It's can we be influential in the bankruptcy without having to control it? And can we eventually exit before the fact that this is probably merely an okay company? Before that kind of hits.

• 52:16Speaker 02

  Is there a limit at which you think in another distressed cycle, the total amount you could have in distressed in the main hedge fund?

• 52:26Speaker 03

  No, because you never know what the cycles will bring. So there's one thing distressed, let's say, is an asset class where the companies are restructuring. But then there's stressed, which are companies that are maybe going to restructure. We think that's actually the best place to be because the performing credit guys are nervous about it. It smells a little and they're not in the business of owning things they're going to restructure. But maybe the dollar price isn't quite low enough for the distressed specialists to get involved. And so we really like that area. But I think, look, we've had in the mid 30s percent of the book in the main fund during the peak of COVID in distressed. But we could have more than that and then add another 30 to 40% of the book in stressed. Again, the idea is we want to be able to provide returns that are the best available returns in credit in that given year. And so last year, that meant a lot of, at the beginning of the year, shorting,

• 53:11Speaker 03

  then a lot of investment grade, and then a lot of distressed. And in other years, it's going to look very different. What we really try to do is we provide a return. You can think about that is between credit and equity with the volatility of credit. To date, we've managed to come closer to equity in terms of the returns. But that's really the idea, nomadically move across credit and sometimes have huge distressed allocations and other times be very small.

• 53:34Speaker 02

  Yeah, I do want to talk a little bit about your approach to shorting. It can be difficult shorting in credit, not just because of the negative carry profile, but also being able to scale positions to have a real impact. What's the role of shorts in your portfolio? Is it more opportunistic, episodic? Is it something more consistent?

• 53:53Speaker 03

  So, look, again, I think having what the world went through, what equity investors went through in January with GameStop. We believe that shorting is part of investing in the sense that you really want to be able to think about things going well and things going badly. An interview question that I ask people is, you want to know how many cars you're going to sell in the United States in two years. Who would you rather ask, the CEO of General Motors or our autos analyst? Okay, if I ask most people in private equity, I think they would say the CEO of General Motors. The right answer for me is our autos analyst. If I want to know how many cars we're going to sell in six months, I wanted to speak to the CEO of General Motors, but now I'm restricted from trading most likely. If I want to know maybe about auto technology, obviously she's the one to talk to. But she's long.

• 54:38Speaker 03

  That's the only way. And that creates a bias because if you own a company, if you manage a company, you think it's going to do well. The freedom to think long and short is really what allowed us to realize that COVID was really bad. And then turn around and say, we still think COVID is really bad, but the Federal Reserve just said they're going to buy investment grade bonds and high yield ETFs. Everything is going up. And so we think that you need to be, in order to be a complete investor, and in order to be really unbiased, you need the freedom to come out anytime you look at something and say, I think this is a long or I think this is a short. The other thing we really focused on is, we've talked a lot about macro on this podcast, but we really believe that in most normal times, it's micro cycles. It's Meredith Whitney blowing up the muni bond market. It's the energy crisis in 2015 and 16.

• 55:21Speaker 03

  It's healthcare being scared around, will the ACA come, then will it be revoked? It's the retail micro cycle that we've been through. It's what's going on in like the convergence in telecom. And understanding when industries in particular, not just companies, really industries are about to really, really go through bad changes because they have too much debt, we think is like a really important way to consistently make money. And so our portfolio, we don't really think about shorts as hedges. We think about them as ways to make money in companies that no longer make money the way they used to. Because again, we think about each company, each industry, how is it changing? How is it being affected? Does it have too much debt? Think about how many industries that used to be stable have been totally disintermediated by technology.

• 56:04Speaker 03

  What's happened to wireline telecom or parts of media that used to be considered the best cash flowing businesses? And so we think shorting is not only important to kind of keep being unbiased, but it's crucial part of a portfolio because you can consistently make money because every single year, companies break and companies fail to perform the way they were supposed to.

• 56:22Speaker 02

  I want to make sure that I get to Ted's customary closing questions. So it'll be a little bit of a lightning round. So what is your favorite hobby or activity outside of work and family?

• 56:35Speaker 03

  I like to run a lot. I was in the helpful position that I didn't use my body much for physical activity in most of my twenties and early thirties. So by the time I got into my early thirties, it was primed and ready. And I ran the marathon in 2018 and I run a lot. And I listen to podcasts and I think about the world. It's a real opportunity time, not so much an outlet, but to learn, because I can listen to audiobooks at 2X speed or podcasts at 2X speed, and it's an important part of my day.

• 57:03Speaker 02

  I remember the 2X speed part. I don't think anyone will be able to listen to you on 2X speed.

• 57:09Speaker 03

  God help them.

• 57:11Speaker 02

  What is your most important daily habit?

• 57:14Speaker 03

  Flossing.

• 57:17Speaker 02

  What is your biggest personal pet peeve?

• 57:20Speaker 03

  I hate having to make conversation for long periods of time with people you don't know. Thankfully with COVID, that didn't happen much. So maybe I would welcome that opportunity.

• 57:33Speaker 02

  Okay, so what is your biggest investment pet peeve?

• 57:36Speaker 03

  So that's easier. So investing is about narrative. It needs to be about narrative. It needs to be how is the company going to change? How's the economy going to change? How is the capital structure going to change? But too often, we adjust the narrative for correlation and causation factors. So for example, this company used to have a market share of 50%. Then they stopped investing in CapEx, capital expenditures, because they were LBO'd. And their market share went to 40%. Our business plan is we are going to reinvest in CapEx to get the market share back. Maybe, but maybe also during that period of time, things changed. Maybe a competitor opened with a much better product, or maybe

• 58:19Speaker 03

  there was a substitute that developed. And so I think this consistent attempt to create narratives where they might not be, really annoys me as a portfolio manager.

• 58:27Speaker 02

  What is your favorite book?

• 58:29Speaker 03

  So the book that has the most impact on me, I grew up in a non-TV house, so we had to read a lot of books. I have a lot of favorite books, but the book that has had the most recent impact on me, let's say, is called Everybody Lies. It's by Seth Stephens, Davidovich, I think his name is. And basically, what he points out is that nobody really knows what they want in many ways. And he uses a lot of Facebook and Google data that he was given to analyze like really interesting things such as how weather impacts people. I know you're in Chicago, you will be dismayed to learn that people going into Google and asking about suicidal thoughts happens much often in cold environments and warm environments.

• 59:05Speaker 02

  I believe it.

• 59:06Speaker 03

  And what it really impacted for me is polls are not really relevant. In COVID, for example, we'd get all these polls, oh, people can't wait to return to cruises, or people are not going to go back to the office. I didn't pay attention to it at all. And it's because that book, Everybody Lies, which is just a really insightful way to think a lot about how people answer polls and think about polls and think about their priorities. I'd say if I can cheat and give another recent book, there is a biography of James Baker that was written by a guy named Baker, and I think the other author's name is, she's a woman named Glasser. He was obviously an incredible American. He was the Deputy Secretary of the Interior. He was White House Chief of Staff. He was the Secretary of the Treasury, and he was Secretary of State. And what really struck

• 59:49Speaker 03

  me in reading it is not only was he an amazing guy, but it was their world was very homogeneous. You look at the pictures, everyone looks like him. And the competitive dynamic in when he was having that dominant career in the 70s and 80s is thankfully just so different today. People with so many different backgrounds. So not take anything away from him, but he was an incredibly talented person who had a much different type of talent pool and not nearly as broad to deal with. And I think today it'd be very different. But it's an interesting book.

• 1:00:16Speaker 02

  What is the biggest mistake you made and what did you learn from it?

• 1:00:20Speaker 03

  When I was younger, I didn't think you needed to work as hard to get by. I thought there were shortcuts. When I was in high school in particular, I remember trying to develop a plan where I would start studying for a history test on the bus. And I had a system where, you know, it was foolproof that if I hit these things and I could do And as I, and that didn't work out for me, by the way. And what I eventually realized, and I think you've heard this in a lot of my answers, is you need to assume that everyone around you is smarter than you and that your only edge is going to be working harder than them. And every time I've tried to kind of rest on my laurels or kind of get by with something I know is a little cute, doesn't work. And so it's a lesson I've learned a lot of times in my life, but thankfully less frequently.

• 1:01:05Speaker 02

  What teaching from your parents most stayed with you?

• 1:01:08Speaker 03

  My father is an immigrant. My mother was born a couple of years after her parents immigrated. They were Holocaust survivors. My father's father was a refugee from Germany. And they, in many ways, had the American dream, and which I think we're all very proud of. They routinely, routinely knocked into me that absolutely nothing was really going to be given to me. And that I was raised, you know, with an incredible quality of life and real, just incredible opportunity as a child. And if I wanted to have that as an adult, I would need to completely earn it. And the fact, that consistency of letting me know there was nothing to hand to me has stuck with me for better or for worse. I mean, I'd never considered going into the arts, let's say.

• 1:01:52Speaker 03

  I mean, I wish, I wish that I had, but that consistency of advice and obsession with kind of knowledge and learning sticks with me today.

• 1:01:59Speaker 02

  What life lesson have you learned that you wish you knew a lot earlier?

• 1:02:03Speaker 03

  I'm going to cop out on this one. It's a little bit the same one with, there's no shortcuts. There's no trick. There's no, oh, I'm going to do this and figure it out. It's like driving, or maybe actually sports is a better analogy. Most professional athletes peak when they're, say, between 28 and 32, where they have a mix of they're really physically strong, but they have experience. That's what you need. You need to be able to work very hard. Luckily, I'm in a field that you don't peak at 32 physically and continue to work hard.

• 1:02:27Speaker 02

  Thank you so much for spending the time.

• 1:02:29Speaker 03

  This was fun. I hope you stay invested in our fund. After this, I don't need to remind you of the difficult liquidity redemption terms. Thank you for this opportunity. It was really good to chat. I hope you enjoyed this conversation and maybe even piqued your interest to explore further. See you next time.