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

“Is it all going to be about mean variance analysis using monthly data? Maybe to come back to what's an interesting 60-40 portfolio one needs to think about, where's my certainty of return in five years? If I get CLO equity right and my manager does a good job with the credit, I can't predict the path, but over a five-year return, here's how much I feel comfortable with it, and equities, the dispersion of potential outcomes is much broader than that. Maybe there should be a role for something like CLO equity. Yeah, mean variance front optimization maybe doesn't pick a CLO, a certainty of where I want to be in five years. Maybe that's how that 40% needs to be redefined. Not perfect, but again, when Treasury is at 2-3, we're not in a perfect world anymore, unless people want to ratchet down the return expectations down to, you know, next to nothing, but I don't think that's going to be a good thing.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, okay, let's critique. Let me answer the or put the question forward before you say it, but high yield bonds don't get us there right away. You're right, and that doesn't. That doesn't. But between private credit, potentially distress, if there's more of a distress cycle, structured credit, those are all returns that begin to play at least part of the role that we think that 40% of the portfolio may play. I mean, they're not fully correlated with equities. Some of them very, not much at all. The question, I think a lot of times, though, comes down to, but wait a second, I've seen marks on CLO equity. I can go to Bloomberg and price my synthetic credit exposure. That stuff moves around all the time. Why is an optimizer going to pick that? And I think that's where maybe people are going to begin to think a little bit more about their portfolio construction process.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Correct. And there isn't anything. I mean, at the end of the day, you cannot recreate a AAA, AAA portfolio that's nearly going to get you to your actual returns. Wish that was there, but we know that's not possible. So I guess the question, and coming back to credit, what is pertinent? I mean, you certainly need to, or most growing corpuses and pools that need to grow are equity-oriented. Okay, that's it. The question is always, well, do we need to do some things that are not Equity centric, and I do believe that credit begins to fit into that world. And again, maybe this is where it's the newer generation of the 40% of that portfolio.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Endowments, I think, have gone the furthest, where, as you know, they're down to 10% might be an average holding for traditional fixed income, and some even have asset allocation policies that don't call for it at all, apart from cash needs right within it. So I think investment, great. It's a challenge. Is the Corf bond fixed income portfolio going away anytime soon? No, it's still fairly large, but I think for investment managers and their businesses coming to grips with the fact that unless rates significantly move up going forward, I think there will be increasing pressure to, again, answer that existential, what are we doing here again in the portfolio?”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“To redefine their fixed income exposure either as inflation protection or deflation protection in the case of fixed income versus floating, but almost having to create new roles for it in order to justify having it within the portfolio. And so again, coming full circle from when that was 40% of the portfolio.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“From that, but still, even if it's 20 or 25, why do we have this in here? Well, we have it in here because it's stable, won't lose capital, produces some cash flow, is not fully correlated to equities. I get it. And that was at the turn of the millennium when you could get five or five and a half percent for holding AAA paper and your actual return was seven and a half, okay, you're right. That does all those things and doesn't put such a expected return burden on your equities oriented part of the portfolio such that it was a nice combination. I think to get that same five or five and a half percent today, you have to be taking below investment grade exposure. What does it do to hold investment grade at rates so low? Again, it's where it's very difficult to figure out how does that fit in. You've seen a couple of institutions, in fact, I would say it's a little bit of a theme.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“First of all, I think investment grade is credit, so I didn't want to exclude it from the credit landscape, and therefore whenever someone has says, can you explain the credit world? We don't exclude investment grade to it. I think the biggest struggle with investment grade right now is its rates. It's rates, and even with a risk premium for potential default, that combination is still so low right now. I think allocators of the world out there right now are really going through an existential crisis as to what to do about investment grade. And I chose my word purposefully, existential in my simple mind means a real crisis of why. Like, why is this, why is it there? Why do we have 40% of our portfolio in this? This historical 60, 40 mandate. And I realize most people have migrated a bit away.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“at that timing perfectly right and to think if we're going to get in and out exactly right and there are some people that believe it and there are one or two people who have a proven track record for being able to get in and out at exactly right at the time but I think for most people it is a commitment that needs to be made in advance and so is this the perfect time to be building one up in a perfect world you started 10 years ago and you know now have a mature portfolio and can and can reallocate as need be but we would argue it should be a systematic part of the portfolio and I think really that is because it arguably is and could be taking the place of what that fixed income component always had.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Why? Because we're not that smart. We're just not that smart as allocators. At the end of the day, you have hunches, you have more than hunches, good reasons to think that there should at least be a tactical tilt to the portfolio. But very few of us have been able to make that pure call on top of equities, on top of the equity market, pure call on what's the top of the credit cycle. And if you believe, therefore, that a strategic allocation should have a dedicated exposure to equities, should they be some corresponding thought to the credit side? And yes, allocate and toggle between private and public corporate versus residential, new originations versus legacy within that framework, but to keep that exposure out there, and it will do less well as markets come down and better as they go up, but we're never going to”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Again, I draw a comparison with the equity markets. Equity markets, buyer valuations rich. So does a typical allocator say, you're right, this is a binary decision. I'm in or out of equities. I've never seen that happen.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Fun. I'll take the other side, Red. It's so hard not to get the Heebeebys when. There's a gut feeling of yield chasing because rates are so low. And aren't those the periods of time when high with rates low and high yield spreads low? Is that why now? Why is now the time?”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Level, it's making sure that credit is a big part of people's portfolios, which to talk our own book, we think is a very important concept.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. Absolutely. Now, maybe it's replacing it, that relationship. Is sometimes dynamic for some interesting reasons, but a full commitment to build out a sizable set of ongoing exposures to credit. That's not to say people didn't invest in credit before, but that was all over the place, though. There'd be a little bit in the hedge funds. There'd be credit exposure in private equity, especially it was distressed some early distress direct lending might be an extension of fixed income or something else. But we thought that was always a little bit suboptimal. We grew up over the last 10 years thinking about how does one make trade-offs across all the credit classes, private, public, different exposures, and how do you begin to think of that in a comprehensive portfolio construction approach as well as a risk management framework that we think adds some benefits and benefits not only does it make you a better credit investor, but I think the highest”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Need to be addressed comprehensively? Maybe not IG, although we can come to that in a moment, but maybe I do have an interest in that direct lending piece of it, but should I address that on a singular basis, meaning build out a singular exposure to private debt into and of itself. And as you know, many allocators have begun to take that approach. Alternatively, we also see some allocators, and I'm particularly thinking of the pension world, are beginning to think about all of those categories comprehensively, that should we begin to think about credit, first of all, as a standalone asset class, which is very different than history up until the last two years. I would have a very difficult time finding an institutional investor who had a dedicated credit component to their...”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Maybe to take one quick step back because a lot of people have very different ideas around what does private credit mean. So maybe just to establish some vocabulary at the beginning, I think when we use, I guess at the highest level, we use alternative credit as a phrase, alternative as distinct from traditional credit. So traditional credit we group into investment grade and below investment grade within below investment grade, high yield levered loans. And then we think about roughly three big categories of, so to speak, alternative credit. We think about direct lending. We think about securitized structures and particularly where you're holding the mez or equity component. And we think about distressed opportunities, each of which needs a special set of investment skills, different sets of opportunities, even though they may overlap a little bit. And so depending on how people use it, I think what we're seeing emerge within the investor universe today is this sense that maybe all of those opportunities”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, this legacy to new issue. Reminds me a lot of this tremendous interest today in private credit. How does that fit into how an allocator should be thinking or that you advise people should be thinking about the place of private credit?”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Investments that we've done, I've looked back on. It's when we came into a manager and said, hey, we've been thinking about this, or they said this, and our chocolate got in their peanut butter. And they said, why don't we work on something together? And so quite often, especially during the middle part of 2008, 9 into current period, you know, we were fairly active in setting up funds of one with managers that would do something a little bit specialized, something that they were very interested in doing, as well as aligning with some of the interests that we would very much want to take on.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“With the specialization in credit, it put some boundaries around which you're looking. Now those are still a pretty big playing field, especially as you begin to go deeper and deeper and deeper. But we've always had a balance between doing our own work that says from the top down, these should be some bigger themes, whether it be at the very highest legacy versus new origination, or drop down a little bit around inefficiencies in small balance commercial real estate markets that we try to think of compelling opportunities that should at the top level demand some attention, but being a multi-manager-centric business, you have the wonderful license to go out and talk to some really, really smart people. And I think when you're doing your work best, there's an alignment that brings both of those thought streams together and some of the more interesting”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Circa two thousand twelve into twenty thirteen, I think we began to make a theme of the firm from legacy to new issue. And that was a broad mantra that we spoke to investors about, the market about, but also internally steered our investment research to. And by that I mean new issuance was going to be a much bigger part of the landscape than we know it right now. Let's get in front of it that really pushed us into perhaps most constructively into new CLO issuance, probably less successfully into new issuance in the residential mortgage world, but we tried in all of those areas.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, as that evolved through the original distressed corporate debt, the RMBS trade, which to some extent still is happening, but really took off for three or four years, what else surfaced and how did you evolve from there?”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Convertibles began to bounce back, and then going into 2010, has mortgages really began to take off again, that people were forced to pay some attention to the space because your investment committee was probably asking about it. I'm seeing all these returns in this area. Why aren't we doing anything here?”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Need to be able to draw attention to very compelling ideas amongst what then was a very confusing set of opportunities. Lucky in the sense that people began to see returns at that point in time that forced their attention as well. So it wasn't saying, no, no, no, let's stake a claim here with the hope that in three years things will turn around. I mean, that's expectations were set in that regard. But as, again, sorry.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“It took very good partnership, in particular one institutional investor, who we came into the crisis thinking that there might be some opportunities to work on together. And thankfully, those discussions continued forward and that the initial capital was, shall we say, more or less organized. The challenge, of course, after that is, I guess it was bringing ideas back quickly because you wanted to get in front of things that would compel people to take action. One of the things that emerged was the public-private investment partnership as part of the TARP and TALF programs that were being put together. And we that had such a short deadline. We could do one of two things, just let it go or get people interested and try to accumulate interest that, in this case, really did have a short fuse to it. So, you know, it was trying to make people aware, combined with a lot of advocacy.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“As you're building the firm at the beginning, it's sort of notorious that whenever those opportunities look the most attractive, it's also, it tends to coincide with a time when it's hardest to raise capital. So, how did you get the firm off the ground at a time where you could see great investment opportunities, but at the same time people were scared?”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“And that was the big play. I mean, our goal and business model at the beginning was getting people in front of those opportunities as quickly as we could.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“We purposefully try to address as much, cover as much ground as we possibly can. That was part of the business model, that it wouldn't just be advising on corporate debt, but really if you wanted to be a credit specialist, you had to be able to speak to consumer debt, household debt, mortgages, corporate credit, financial institutions debt, commercial real estate debt. And ideally too, you would be able to speak to that in cash form, in structured form, public form, private form. And so we try to look across all of those opportunities. And it has been a very interesting nine years, not to go through all twists and turns, but you were right. Clearly it began in 2009 and 2010 with distressed and rebound trades, beginning with shorter duration corporate credit, which snapped back quickly. But you had some which ran for quite some time. RMBS in particular, CMBS, and other forms of structured credit that took a while to”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“And it turned out that the timing of launching the firm in 2009 was wonderful. If you're going in the credit markets, I think at that point in time, certainly the distressed world and some of these other markets were more long than they were sort of in hedge vehicles. And it turned out that anything you touched then had a nice run. So the world's changed a lot in the markets and the credit markets. How do you map out the credit landscape?”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“few mortgage funds here and there. It was nothing like we came to know it. And that was an interesting puzzle in my mind. While on the one hand, this seemed like a very interesting asset class, but yet institutions and other investors still hadn't embraced it, and there weren't advisors that specialized in this area. And that was really the genesis of putting A and B together of thinking about Gapstow. To when we rolled out in 2009, that was our niche. We put Again, the things that fell together nicely were institutional growing interests in credit combined with a proliferation of opportunities, many at the time being distressed but quickly moved into new issue. And then lastly, a set of traditional advisors that weren't as well versed in giving advice on credit. And we thought that that might make for a very interesting entree for our group.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Invest Corp was a terrific place to work. But if I were to think about it and was about that time where we were beginning to see the cracks in the credit crisis, it was kind of interesting to begin to think about were these kind of trades, credit trades, an interesting set of things to be looking at. And that shouldn't maybe sound as surprising as it was in 2007.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Overall, and we started that group, John and Kevin and a few others had already gotten that group off the ground, and we grew it, that ultimately transitioned to a firm called Casey Quirk and Acido, which still exists today and is very, very successful. As Casey Quirk, and that was a great run doing that work. Ultimately, though, 10 plus years ago, I had an opportunity with one of my clients, specifically in Best Corp, to move over to the asset management side. And as much as I loved working with John and Kevin in the team, it was one of those opportunities I thought was fairly unique and took the chance on beginning to create an alternatives business within Invest Corp, which is a global private equity firm. Private equity real estate and hedge funds, I grew to join out the hedge fund group and had a nice run. Of course, it was the big run up to the financial crisis and always going terrifically well. And to bring us to the future, it was during that period of time where I began to think about what could come next.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“I couldn't understand why they were letting this younger person completely take the reins on asset management projects, and that was because you had a hard time applying Booz Allen McKinsey's style business model, when in fact your clients were companies measured in the tens at most hundreds of people. You know, it's not like working for a large manufacturing company where you're working for gigantic corporations where size and scope project align a little bit better. And it was one of those situations where I was scratching my head saying, I really liked this industry a lot, but how do I keep doing my management consulting work? by one of those got the right headhunter call at the right time and Kevin Quirk and John Casey were looking for someone to join their team out in what was then Rogers Casey to create a specialized business model which would do management consulting work but for asset management companies exclusively and allow ourselves to develop our own business model, our own staffing our own intellectual capital that could more appropriately align with the needs and interests of the group of”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I came to New York in 1995 and I started doing management consulting work. I thought that was an interesting foray in terms of taking my interest in general business plus background in finance and economics. I joined Booz Allen's Financial Services Practice and more specifically their banking and capital markets practice. Work there for three years and in the course of doing so fell into asset management related clients doing planning work from branding to credit risk management to organizational structure projects within a strategy consulting framework instead of projects. I fell in love with the industry. I thought that was the path to partnership at Booz Allen. I suddenly realized that that wasn't and there was a reason why.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source
“My guest on today's show is Chris Acido, the CEO and Chief Investment Officer of Gapstow Capital Partners, which is a credit-focused investment organization. Chris started his career as a management consultant and traversed over to Asset Management Consulting in and around the founding of Casey Quirk and Acido, today Casey Quirk. He switched to the buy side focusing on hedge funds in the years leading up to the financial crisis and started Gapstow in 2009. Our wide-ranging conversation starts with Chris's background and moves to the formation of a credit focus firm in the thick of the financial crisis. We discussed the credit landscape today, the shift from legacy to new issue opportunities, and existential crisis in the investment grade sector, liquidity, ETFs, credit as an asset class, credit-specific due diligence, and the next distress cycle. Please enjoy my conversation with Chris Acido.”
2017-12-11 · Capital Allocators · Chris Acito – Credit Where Credit is Due (Capital Allocators, EP.33) · IDENTIFIED FROM THE TRANSCRIPT · source