YouSaid · the spoken record

Chris Acito

lines on the record: 83
first: 2017-12-11
most recent: 2017-12-11
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“The best advice I could give, I have learned about grit over time, and I think that 105-year-old would have a much bigger impact on me telling me about grit at 105 and looking back and being able to say, I have a few instances now to tell you about where tenacity and stickuitiveness win over the long term, not two or three weeks, but kind of five and ten years stick toitiveness. And, you know, let us go through a couple of examples where you chase the shiny object. What's that balance that you need to learn? Occasionally you need to chase that, but the tenacity of being able to stick with ideas over longer periods of time, especially if you bring enthusiasm and intelligence to them, pay off over longer periods. And I think I'm kind of halfway through learning that, so I would hope at 105, I really, really would have learned.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Grades don't matter that much Not to be facetious, and I'm fairly confident my kids are not going to listen to the podcast because credit investing is not there, so maybe they won't hear this one. And that is, of course, a catch-all for reminding oneself that as one goes through life, whether it be college or other points in time, that you sometimes put your nose down and you focus on what's right ahead of you and you focus on what you assume is what everybody else is the right thing to get out of it when in fact things like building relationships and taking the time to think big picture, that's not necessarily antithetical to getting good grades, but if you look back on your many stages of life and say, did I get the best grade or did I make the most relationships? Actually, the relationship side, of course,”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Recently, is spending a bit more time looking at what some of the public pensions Perspective on the world where you have allocators who have to be fairly transparent with what they're doing and to actually get to read in almost live time, certainly not with too much of a lag, you know, how people are thinking and how are they changing asset allocation. It's very interesting. That's a terrific set of case studies to be able to put together and read and especially when you put together six, seven, twenty, twenty-five of them, and you can be driven to draw some lines and learn about where things are going.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“So professionally, personally actually, I've been doing a lot of reading recently because I made it a goal for the next two years to keep up with my kids reading. My kids are both teenagers, and so I've been rereading all the classics along with them. It has been. I've been very good about the shorter classics, not all the longer did not get all the way through. You know, on the professional side, one thing I have found very helpful”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Get good grades or push to hit certain sets of accomplishments. It was the praise was given when you did something really creative, when you did the play in a slightly different way. Or frankly, you went out for the play as opposed to doing something else when you played in the band or you wrote an essay in a completely off-the-wall manner. That got praise at home regardless if it was particularly good or not. It was the effort and it was the enthusiasm, which I try to explain to my relatives when they do say, you know, what's Mr. Boring up to these days? No, no, no, no. I've taken some of those lessons. Look, look at what we did here. This was kind of interesting and this was a little bit out of the box. So as much as my relatives don't believe it, I do actually carry that with me.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't know if I can think of a specific line ted, but there was no question in my family growing up that the best solution to any situation was the creative one. And maybe to put that in a little bit of context, my family are all performing arts people. We got opera singers, playwrights, novelists, several musicians, several music teachers, actors. I am the black sheep. I'm literally considered the black sheep in the family for having gone into the very uncreative world of financial services. You know, family gatherings were always built around all of that, not talking about credit investing, believe it or not. I can't get there. So when you grow up in a family like that, I never remember being pushed to”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“A moment. Yeah, I remembered my favorite moment was my freshman year and I just made the A team and I was playing in the backs and out of nowhere someone threw me the ball. And I just kept running. And I hadn't been hit because I'd been hit a lot that day. And for some reason, no one had quite hit me. And the thrill of touching the ball down over the line. I remember it distinctly. I can picture it very clearly in my mind right now. It was a lot of fun.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“As a participant or a fan. Well, I do live a little vicariously through my teenage son soccer these days. Personally, you know, I played rugby throughout college and a little bit afterwards. And that I look back on with very, very fond memories. I was small and slow, but apart from that, was an okay player and just a terrific memories of a lot of camaraderie, a lot of occasional accomplishment, not often, but occasional. And the excitement that comes along with playing a team sport.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's MPLs. It's really here. I don't mean to pick on our manager. I think everybody that's, you should not be waiting for 2008 again. That I'm pretty sure about overall.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Right, right. And that could be. I mean, we had people raising money for European NPLs six years ago. And maybe it's now. I've heard a couple of good pitches for, no, no, no, this time it's.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“It is stoppling, but now an active manager should say, but that's perfect, right? Because I got along and I got a short. And your distressed person should say that's great. That's why I get paid. I'm going to sort that out, and that's a big trend, and I should be able to see that. You shouldn't get to the end of the oil and gas cycle and say, oh, I missed that one. Or I didn't know that was a distress cycle.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“And that Amazon cycle, which I'm sure is happening, feels different, right? Because it's not all of retail that's in distress. It's all of non-Amazon retail. You have a real estate problem embedded in that. It's a tough one.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Happening during a period of time in which the broader economy is doing, fine. But it's not the last one, and I think one has to be aware that it will happen in certain areas and be ready to address those, even though you're not seeing it in the broader data overall.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“I am convinced that most people believe I'm waiting for the next 2008-9 to happen. And thankfully, that's not going to be the next cycle. And I think for people who are going to wait for the apocalypse, apocalypse 2 to happen, I just are not going to get money to work. It's not going to be there and they're going to be looking for something that won't happen again. Arguably, we had one. I mean, 2014 to 1516 in the energy sector, that looked like a distress cycle. That's interesting. That's a distress cycle. That was pretty severe In an industry during which the rest of the economy has grown pretty Maybe the same thing's happening in retail. Maybe the next distress cycle is called the Amazon distress cycle. Again, where you have severe displacement of certain industries.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Asset classes that they don't own wholly. The asset class is lending to people who buy and reconstruct buildings. Okay, we can play that in a couple of different ways. How do we do that? Actually, why limit it to those two people, the gentleman who covers banks for us, he just came back from a roadshow speaking to 15 community bank lenders. What are they saying about commercial real estate in their local areas? To get that multifaceted view, which again maybe is happens in a perfect world in other areas, but certainly my background a little bit at InvestWorp was working within the fund of hedge fund group. And that got to be a very segregated set of activities. As it did with every allocator, which is somebody who very narrowly focused on a strategy and sometimes you wonder, do you lose, and again, that was having to cover a lot of broad ground, but being able to gain the synergies of”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Have someone else focuses on small banks and investments related to smaller financial institutions. One person on structured credit, one person on corporate credit, one person historically more on private credit. And this is when we come together and we think about what's going on on the things that we're responsible for. One of the lessons learned, Ted, I think, is very good to combine publics and privates. It's really interesting to have somebody who has spent a lot of time recently thinking about CMBS discussing what that outlook looks like relative to somebody who's been spending time with direct commercial mortgage originators and to see what”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Some of the good lessons learned, the six or seven people who work on our investment team, we meet all the time, twice a week formal meetings. We rarely miss them Mondays and Fridays, Mondays are more oriented towards research, both manager research as well as industry research and markets research. Friday is more oriented towards portfolio, so we sit down every Friday with a different one of our portfolios and pretend we're having a client meeting and say, remember, here's our plan, here's how we're working forward, here are the decisions we're making, are we spending enough time with each of the portfolios? We have to spend a lot of time together, and therefore you get the general cross-pollination of good thinking, of ideas, and that comes because we're all asked to do a little bit of specialization. So amongst our team, one person she specializes in portfolio construction looking at risk. Great lens.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“What may be more interesting set of opportunities to come up. And again, I'm not calling market top. Wish I could, but it would be advice that we would give right now. And that's not to say completely out, but preserving liquidity, maybe taking a little bit of a lower expected return in order to preserve the optionality going forward.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Some of the other strategies like royalties. Should I be beginning to fill that out so I have a more diversified bucket? And I think that's a very good call for most people in the private credit area. Secondly, I think it's, well, I can only speak our own book on this one, which for the first time in eight years we've, in the allocations that we are allowed to make to more liquid, more quarterly oriented funds. It's the first time in eight years we've really looked at long short and low net managers as a bigger component to the portfolio. And lastly, I think this is the time when you begin to think about does one raise cash or in the case of certain funds where structural IP, should you be more aggressively giving cash back and beginning to pause a bit and take some of your exposures down a little, not fully, but down a bit and preserve the liquidity for”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Really, really hard question. Again, that stands in contrast to the last eight to nine years where I would pound the table about one or two things every year that just were even better than some of the other things we were looking at. It's a really difficult time for what are the credit opportunities that we see there. First of all, we are believers that you should always have exposure to credit. And so the idea that you will keep it's not binary. On the less liquid side, I think now is the time for people to think about extending themselves out a bit. Most people have private credit portfolios built around middle market direct lending. Great first place to start. Makes a lot of sense for that. What can I be adding to that to make sure that I'm not just hitting the same set of exposures over and over again? Should it be commercial real estate debt? Are there some specialty lending provisions?”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“And structured credit as well, and we're only midstream through the reups to many of the managers. So it's only natural that we're beginning to think through many of these issues.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Incentive, oh, but wait a second, these funds are very resource intensive. Maybe the management fee is more important than the, again, we're all coming to grips with what that looks like. How long are these funds going to be around? I think people at the beginning were very optimistic. They'd be wrapped up within four to five years. They're not wrapped up within four to five years. What is that tail provision? Can we think creatively about how do we avoid tail positions in credit funds? A lot of things that, again, smart people knew about, but we're only coming to the end of the resolution of the first generation of, I'm thinking more of particularly the private credit funds.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Market right now is still not fully set on what is that right balance between lock-up period fees and how much liquidity I need to have all put together. And that will be answered with time. But partly I think people are now becoming familiar with what private lending and private credit and alternative returns look like. They're coming in. Maybe we thought they were heroic at first. They're coming out fine. Okay, fine was different than heroic. You know, did I need to give that manager more of a reinvestment period because actually they didn't have time to recycle capital, so I got that back too quickly. The IRR was good, but I did a lot of work for a 1.1 times multiple on my invested capital. Oh, maybe I should rethink that. Okay, but returns are probably going to be a bit lower. How do I rethink management fee? But I want to...”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“What do they do all day? How do they make this happen? And it's an understandable process. In fact, it's very fundamental and very straightforward, but one needs to look at a number of them over time to be able to say, oh, this is why they're different than these folks. Oh, this is a seasoned person. I used to think this person was seasoned. This is really seasoned right now. Oh, I get it. They're doing more sponsored lending as opposed to non-sponsored. Do they have the right coverage to do that? Developing those, that background and that set of experiences, I think, is probably the bigger transition for doing manager evaluation. Again, it's more like looking at how you might take apart a small bank and how are they funded? Oh, wow, actually that's an interesting question. Do I answer that as much as I should on other investments? The other part that people need to be aware of, what's the right tenor and, well,”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Number one that jumps out Ted is this is different management than many allocators are used to. Allocators are used to analyzing hedge funds and long-only firms, public markets, understand trading, understand the valuation of the issues associated with it, understand the dynamics and the liquidities of those markets, and importantly have developed a qualitative sense for what's a good manager, where there are ideas like. Credit investing is very different in that it looks more like a bank, particularly when you get into the new origination elements of investing, or maybe prop trading to some extent, but just take on the direct lending side. When you walk in to evaluate a direct lender, you're not going to go far if you're saying, you know, we'll talk to me about who's the trader and who's the head PM. They'll say, well, here are my 20 originators and here are my 20 underwriters.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Are there particular Characteristics were managers trip up, that being someone focused as an allocator on credit managers, you might see that you think the casual endowment foundation fund to fund whoever it is that has a little bit of distress every now and then will miss.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that unfortunately works a little bit against credit right now because if you go to your typical investment committee there are 10 guys and gals who know equities. They're private equity people. They're hedge fund managers. They're long only managers. You rarely get to the committee where of the 10 people, six are credit people. And that's a bias, but that is changing as well. I think as investment committees actually reach out to people who have a general knowledge. And just as on your committee, you like to have a venture person, a private equity person, a public markets person, a long short person. Now, hopefully people are saying it's great to have a structured credit person, a direct lender, a real estate debt person, and build out the set of portfolios that way.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Are those common factors within credit investing? Unfortunately, there's no great singular risk system right now unless you're staying in a very segregated part of the market. And that's, again, where I think that is a manageable approach. I mean, we've always, it's a little bit more qualitative than we would like it to be, but we do sit down with our managers, and regardless of the credit sector that they're working in, try to understand market sensitivities, exposure to interest rates, exposure to spreads, exposure to fundamental events, the ability to potentially trade and try to establish at least a common mapping of what are the drivers of return, both to see when you are overlapping too much in one area as well as making sure that you are finding as many diversified pieces within that overall. No, it's a challenge that, again, I”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“It is difficult. I mean, just like inequities, how do you get to know what makes for a good residential mortgage person who today maybe is having to build a conduit to source non-QM loans and go to the markets and teach the securitization markets again about resi mortgages and do the first couple of deals and build that up? Oh, that's a lot of work. On the other hand, I've got a corporate credit person offering me this really interesting opportunity in synthetic credit. Oh, that's a whole other other set of things. How do I put all of this together on a one-off basis and look at them? It's a little bit of a challenge. I think there's also the portfolio construction question about, okay, now that I've put them together, how do I, in some coherent way, say, here's the risk across all those portfolios? Again, equities relatively straightforward. Barr has been doing that for 30 years. Factors that associated with the equity markets.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“How does the portfolio construction work when if you put together some of the things we've been talking about These markets aren't as liquid, which would mean that optimizing the portfolio based on risk reward might take time, rebalancing can be tricky, and that also if you need to have this particular expertise in each area, you have the same problem that, say, a multi-sector equity hedge fund has, which is each person has their favorite ideas. And if you want to rotate from real estate debt to private corporate debt, takes a lot of time. And you have people that do such different things that they're unlikely to be able to sort of cross over and understand the differential risk rewards.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Our balance sheet in order to do great opportunistic and long-term investing for us, and that's the way we want to work with folks. And again, how many people will be up to that call? And even if in the end it doesn't lead to that sort of omnibus mandate, just beginning to have that dialogue in a credible way that is so different than, as you might have interacted with a credit manager before. It's the way you interacted arguably with your core fixed income manager 15 years ago. He or she had analytics. They helped you solve corporate treasury issues. They were your problem solvers. And I think by virtue of the returns, maybe that's receding a bit. Who's stepping into that void? Maybe it's the credit managers or, look, I'm here to solve that problem of getting you to your actuarial returns over time.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Have it for as long, let's consider it evergreen. Let's put parameters around what you can do and Mr. or Mrs. Manager, you please make this trade-off over time for me and we'll align interests such that that is done very well. I think you're seeing institutional investors who view that as a preferable model. Then again, trying to find each one of these one-off funds, I think they solve valuation issues, they solve liquidity issues, alignment issues in doing so. And I see that as a big part of the future growth. And I think institutional investors will no longer view some of these emerging firms as, oh, they have an interesting distress fund or RMBS fund. They'll say, we have a bunch of credit investing partners. And what we do is we step in and we allow them to use our...”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“effectively larger investors are coming to credit firms and saying look I can't time your CLO fund versus your commercial real estate debt fund I don't know how to time building a core of private exposures and opportunistically jumping on less liquid ones Here's some money”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Asset management and ask yourself the question among active investments Globally, not passive. What's growing? Arguably credit traditional and alternative credit are one of those areas that people are paying more attention to. So the assets themselves are growing. So again, as these medium-sized firms are looking forward and they look at the vanguard of those few firms that have made it to the $80 and $100 billion mark on the credit side, is there room for a fifth, sixth, seventh, eighth, ninth, and tenth of those? Could we do that? How do we do that? Interesting sets of questions. Equally important, not only do we build the investments part, how do we begin to work with clients differently? And I think there's also our house view is that that is changing fairly rapidly as well. And maybe there's some parallels to core fixed income managers of 15 years ago, which is we are beginning to see the development of multi-strategy separate accounts where”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“they larger corporate credit platforms or direct lenders or folks who have accumulated a couple of these different capabilities. You know what, prior to crisis would have been a terrific business at $3,000 and $4 billion, now they're $30 and $40 billion businesses. And so my management consulting hat says, that's really interesting. How does one plan as a business for that next phase of growth? And you're seeing it in my own estimation along a lot of firms, which is how do you make that transition from boutique firm to be managed a little bit more professionally? That's not to say these people are unprofessional, but management becomes an issue and leadership becomes an issue and people have to play important roles who maybe aren't just the senior investment person. Those are beginning to come to the fore, I think. And that's a very high class problem to have. If you look around,”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“And credit managers who, apart from some giants who have grown over the years, weren't very big businesses prior to crisis by and large. Again, not fixed income businesses, yes, emerging some of the high yield managers, but now some of the folks that have begun to focus on alternative credit.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“We don't have to go into a meeting saying, what is credit? And let us answer that for you. Usually we dive down into something richer around a specific opportunity or a more nuanced view of how do I set up a basket of credit exposures. And that's changed a lot. And that's been exciting. And actually, that's as I look out the next five to ten years. I think that's the next wave of credit investing that maybe we've come full cycle where a decent number of investors have said, okay, you're right, credit isn't just opportunistic or catches catch can among other parts of my portfolio. It's a dedicated exposure. I think this sets up for a very exciting time for credit managers.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“we're going to be sure about capturing it is getting paid back when the bonds are being paid back. Now I view that therefore a structure is a smarter structure is one in which you literally or figuratively tie your hands for that period of time and in a perfect world give yourself an option to get out over time but count on the five-year period and should everything go right and you roll down the credit curve and spreads collapse more quickly have a you know a metric that says okay we take our money off the table here but go into it saying we'll need the full period of time in which to realize the investment”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Eventually, at some point in time. Maybe coming back to my points earlier around thinking about it as the certainty of return over five years. So coming around to it, I think being smart about liquidity, if you are high yield sells off, okay, great, let's get into high yield. And it's great because we can, it's with an endowment having this discussion where they said it's great because it's very liquid and we could get out of this. And I made the argument that actually we should really treat it as an illiquid asset because as much as we think the return is this big right now, there's only one way.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. Because I think institutional investors and smarter investors are recognizing too that the liquidity Around the way you structure your investment, especially in the bond and credit world, shouldn't simply be driven by could I sell this today One of the beauties of credit investing is Paul de Par. If you get your credits right, you get your money back so long as you stay in the trade.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“And do you think that ultimately undermines Better alignment of asset and liability in the institutional structures. So you're talking about these sort of intermediate-term vehicles in that certainly in the corporate world, some of these pieces of paper are the same. You have daily liquidity and an ETF and very long dated liquidity, which could be for the same bond.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“The concern, I think, in my mind is as one thinks about, maybe it's a rising rates question, which is you typically build into your portfolio construction what happens if rates rise from a mechanical one? I can put that into the model and see my duration exposure. I wonder if you also have to be factoring in a different exposure. Should rates begin to really rise and retail investors relearn what bond math is? Could there be some dynamics where you also have to recognize in those situations where there could be a very significant change in liquidity and pricing that's at a minimum temporary, hopefully just temporary?”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Manager really has that right structure in line. The second part of your line of questioning around retail oriented funds, both ETFs and mutual funds. I get the conference panel, what keeps you up at night panel question, what keeps you up at night, that's one that I often bring up. And not so much... I don't assign a probability to it. There's an uncertainty to it. We've never had as much individual retail so to speak money in the credit markets as we do now and it's only beginning to proliferate as you see smart people begin design closed end and even open-ended funds for retail markets that are beginning to multi-asset credit investments And it is a big, big unknown. I mean, we got a little bit of a scare with the taper tantrum a few years ago. We had some trouble in 2015 with a high-yield hedge fund or two.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“illiquidity or complexity premium. On the more private side, I think investors are getting comfortable with this notion that there might be a shrunken PE type fund put in place where there's a call period of two years, investment of another year and then a roll-off over two to three. Whereas that may not seem particularly insightful we're getting used to them, but it was interesting even up until a couple of years ago where if you would talk to an investor about structure and how you would want to frame an investment in credit, public or private, they'd get quarterly hedge funds, you'd get giving your favorite PE fund money for 15 years, but things in between were non-traditional and they had to really begin to get their heads around it. Now I think people are comfortable enough with these intermediate duration structures that they see that aligning fairly nicely with credit. And again, people I think are getting much smarter about making sure that the”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“One needs to be concerned about always structures and what is the worst case scenario. And I think that's why you're beginning to see within the credit world, institutional investors beginning to accept and accommodate non-traditional structures where if it's more quarterly oriented, I think they're accepting of the fact why there may need to be a very long notice period or a fund or investor level gate and sometimes more than just a quarter. I think they recognize that that is the way they protect themselves. And frankly, that's the way a good”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think the implication is that one should be very careful about your holding horizon and if you are an investor in other managers or the liquidity provisions of funds aligned. And again, I think everyone has learned their lesson from 2006 and 2007. And I think assets generally speaking are in better hands and in better structures than they were then.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think they're very, very real concerns. As much as the changes in banks, maybe in the credit world, have been focused in marketing pitches around see, we're replacing banks in terms of lending. But I would argue equally important, in fact, more important for credit markets and the fact that they've pulled away from trading and supporting trading. And it's a very, very real issue. And I think we've unfortunately been lulled into a little bit of complacency because the last nine years have been a one-way ride with a couple of hiccups along the way, but even in a couple of those hiccups, you begin to see the fact that market liquidity can disappear very, very quickly. Think of the end of 2015 coming into 2016. I think they are very real. There's data out there that obviously shows the diminution of what the banks themselves will balance sheet.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Within the universe of the things you are playing, as you move down the either down the capital stack or down the liquidity spectrum, as the case may be, You scratch your head a little bit about two things that we hear a lot about that trading volumes are challenging because of the street's contraction. And this whole wave of ETFs, particularly in things like high yield debt, is just a massive mismatch of asset liability. So why don't you take each of those, talk a little bit about the trading dynamics of these, and then a little bit about ETFs.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“It isn't for GAPSO, but I can understand why people would put it in there. At some point, one needs to draw a line in between where their research ends and we're leaving some things out. We've generally felt that unless we were investigating true risk of default credit spread type exposures, that we would forego other opportunities. Insurance linked debt is very interesting. But in the end, after debating that, okay, they're called CAT bonds, or many of the exposures are, we decided that that was not a credit risk as we would come to know it. And frankly, that we think we're good at finding, so we would exclude that leasing we view is more of an operating business. Now that said, many of the things that you just mentioned have private debt-like Elements to them relatively stable valuations, yet return profiles of cash flow.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Do you include in that universe? I suppose I've heard the label esoteric credit. So things like litigation, finance vehicles, and there's probably a host of these. There's royalties, music royalties, farm royalties. Leasing, leasing, airplane leasing. Is that part of how you construct portfolios?”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source