YouSaid · the spoken record

David Lyon

lines on the record: 86
first: 2025-11-17
most recent: 2025-11-17
sittings or episodes: 1
sources: podcast

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“Can be somewhat sarcastic and I can be somewhat skeptical. It's amazing on how Outlook can transform results. If you just think, you know what, it's not the end of the world. I'm going to push through. I'm going to have a brighter perspective on this. It will actually impact the result. Learning that for me was the hardest thing as a natural cynic. It's difficult, but it's powerful.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“20 years ago, I was a lot less mature about the importance of team. And that's going to sound stupid. I was much more of a loner. I had opinions. I do what I do, and I know what's going on. Team Schme, this is all a bunch of gobbledygook. We figured out a society division of labor. It's actually pretty effective. There are people that are better at certain things than you are. What's powerful is getting those different people together to do something. When I built this business over time, it dawned on me having people with different skill sets, having people with different strengths, and having them trust each other, I never would have said those words 25 years ago. And if you knew me, never would have come out of my mouth. That's something I wish I really understood a long time ago, because it is the single most important thing you do. It's selecting those resources and getting them to work together. Also, the power of positivity.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Income on something that doesn't compound. I don't get it. I still don't get it to this day. And then just people that are obsessed with IRR. Because in these funds, there are ways to manipulate it. You have to look at multiple of capital and how many years you're stuck and the average amount of capital deployed and then use that as a litmus test versus IRR. That's one of my biggest pet peeves.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“On the investing side, is IRR? It drives me crazy, assuming that capital I give back to someone who's going to earn the same rate of return that's still being invested. It drives me up a tree. I've given this big check back and you're assuming you're redeploying at that same rate of return, but it's not, I'm actually making no money. The most important part in investing last time I checked is to compound your money over time. That also goes into my other corollary of people that are obsessed with yield. If you need yield, wonderful. Great. Have a cash yielding product. However, your return goes out every quarter and doesn't get redeployed. And especially retail investors, I don't understand like I want a yield. I'm like, so you can pay ordinary income so you cannot reinvest your capital? If you have dollars to invest, you're not a pension with a liability. You're a person. If compound your money in something you believe, those are the two where I understand if you need cash heal to pay certain expenses. Wonderful. You're retired and you have to have income. Terrific. If you're trying to compound capital over time, why pay ordinary...”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“About they don't want to lose their ball. They want to make sure when they go to grab a club, you're right next to them. If you want to be charming, you do that on the side once someone invites you into a conversation and you can say your witty thing, help me to deal with difficult people. It helped me the importance of work ethic. And it taught me there are some basic principles you got to master here. Unfortunately, I play golf. I have played for a long time. I've seen every flavor of caddy. When someone's good, at least I can take care of them because I used to do it. And I used to do it for a long time. I can realize what a drag it was sometimes.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“I was a caddy. I learned a lot, and this was in the 80s. I think a good loop was $18 a bag. You were as self-contractor. You didn't show up with set hours. You didn't scoop the ice cream. You could choose not to work. You could choose to be lazy. You could choose to do only one loop. This is all on me showing up and doing this. When I was thirteen, understanding that work ethic? And then second, dealing with people. When you caddy, you see people cheat. You see people talk nonsense. You see people that are incredibly difficult and they're stuck four or five hours together on a golf course. You learn a tremendous amount of osmosis. Then you learn how to be a good caddy. What are the most important things some caddies go overboard and talk too much and start telling stories and that stuff, but they lose golf balls? My dad, he's departed, told me very early on, never lose a ball. Ever. You keep up and shut up until you're spoken to. Always have a wet towel. What do people really care?”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Will more competition emerge in what we do? Yeah. And it all depends on what returns people are willing to accept for what we do. There are too many people in this hybrid space that pitch unrealistic returns, that you're only being driven by either buying equity and something has a lot of volatility or taking massive industry or company risk. And you're pitching it as downside protection. That to me is intellectually inconsistent. If you're willing to be honest with your expected returns, there's plenty of stuff to do. But it could change because more and more people as these private equity firms have become institutions. Not all of them, but focus tends to be more on AUM and growing AUM rather than earning returns in a given asset class. That impacts overall cost of capital. I don't want to tell you what's going to happen in four or five years, but that concerns me, always does when people get big and rate of return isn't the most important thing. It's their brand name. It's their marketing arm.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“The good news is for the current pools of capital we manage, we're in good shape for the next couple of years. My ability to tell you what's going to happen in four or five years challenged at best. I'll give you some flavors. Dislocation's awesome for us. If you have your best company in the world's blowing up, are you going to call me or some vulture? Call me. I have a front row seat to that business either way. I saw it during COVID. Won a lot of traditional lenders were nervous and they pulled. I'm like, I'll come in. You need capital? 20%. That's a good business. I'm not going to predict that was going to happen or show you four slides that the world's going to end. In that environment, awesome. Hybrid flexed capital to do that. Awesome. The worst environment for us is 2021. Awful. Awful, awful, awful. No one cares about money. There's a 20 billion dollar IPO every week of a company I've never heard of. People are squeezing cost of capital. Rates were zero. Toughest environment to navigate where everyone's a VC investor. It's difficult because no one cares about money.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“A lot of the investments you talked about are structures for this moment in time. And it may last several years, but there's no reason to think 20 years from now we're going to have the same. How do you think about the flexibility inherent in the hybrid strategy of where you think this goes over the next couple of years?”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“You can do real MA that impacts your business. If you have a company with 700 million of EBITDA, it's hard to do M&A on an add-on basis that's going to have a real impact. Whereas if you have 15, mid-cap, larger cap, private equity, you're going to have to think about return expectations. What is that asset class going to do? I'm not going to quote numbers, but if you're rooted in 26% net, you're going to have to think about things over time. Do I think that some of these vintage are going to have challenges? Yes. On the other side, now it could take many years, but there's opportunity. Eventually capital will have to get returned. People have to be more realistic. And if there is a real market cycle, maybe valuations will get adjusted. Right now, it's challenging to transact in that market.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you're making a bet on rates, there's this thing called money markets you can buy, and no one charges you one in 10 for that. When you look at that asset class, what are your expectations? What's going to happen with rates? Our current administration has made their point very clear of where they want rates to go. What is your expectation about defaults? Now you're starting to see non-accruals and defaults pick up in a lot of these public vehicles. There is a 30-year history for leveraged loans, what defaults and recoveries have been. It's up to you to decide, are you going to use that as a proxy? Is private lending different? I think you can solve for that. There are probabilities where your outcome is not what you thought it was. You're locked up for a long time and it's not 10%. It's something else. But I don't think it's bad or catastrophic. It's easier with smaller pools of capital to buy smaller companies to make returns that are usual private equity type returns, 20s, 25%.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Summer 12, 13 years. As long as the leverage provider, you have degrees of freedom, you don't have people say, oh, party's over, you got to sell all this stuff in a fire sale. That's when you blow up structurally, the industry is in a much better place from leverage perspective. Do I think there's going to be an implosion in direct lending? No. Like everything else in life, there are going to be defaults and there will be some bad recoveries, people that were more aggressive are probably going to pay the price. The good thing is the distribution of outcomes is relatively narrow. If everything goes well, it's going to be that levered return that everyone talks about the double digit. Things go poorly. It's tough to lose money in these. It's really tough if you're diversified and thoughtful about leverage to lose money. It's possible. I'm sure someone's going to do it. There's been a lot more sophistication about what they're doing, diversification, all that stuff. Question is, are you getting paid adequately in credit spread? That's an asset class attractiveness question.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think in direct lending people learned a lot from the GFC. People have been thoughtful about leveraging these books. I'm not a CLO guide, but something like 93% of the CLOs form before the GFC had positive equity returns. The reason why I mention that is that CLOs actually have a good structure. People that don't understand say, oh, they're four-sellers. They're not. There's a specific regimen for how cash flows get diverted. And people are not forced to sell assets at sentiment bottom. That's why you would think that 10 times levered vehicles that bought LBO loans pre- the GFC, no one would think 93% of them would have positive equity returns. That's because the structure was good. They weren't compelled to sell collateral when loans were trading at 65 cents. Structure is very important. A lot of these direct lending funds aren't financed with TRS, aren't financed with overnight repo. They're more thoughtful leverage facilities. A lot of the funds have long-duration capital. Some are permanent.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“No. Like, please read the stuff I sent you. That's what you want. The final point would be, I want people to think that I'm an idiot of my team. I want them to think they can do my job. And they don't have it for now. That's important to me. I don't want people to think, oh, whatever David says, that's terrific. I want them to challenge me.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“When you get into trouble doing this stuff, you take risks that you really don't understand, you say things like downside protection when the thing has got massive inherent volatility and just being humble enough in like, I don't know what I'm doing. This seems like a bad idea. I want my team of people that are smart, that are aggressive, but I want them to advocate for risk. The single easiest thing to do is be risk averse. Anyone can do that. Oh, that's a risk. That's a risk. That's a risk. The skill in investing is to want to take risks and to understand how to quantify those risks. And to say, am I getting paid appropriately for them? Now, that sounds like a lot of mumbo jumbo. Finding someone at a mid level or principal level that wants to take risks and knows it could impact his or her career is rare. As long as they're responsible and as long as they actually have data, because I'll have guys on my team and gals on my team that will call up and say, we should do this, we should do this, we should do this. I'm like, I hate it. It's terrible.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of your agreement, don't fight over little things just to fight. Getting rid of that mindset and then also being not recognized as a competitive force. I'm not someone they compete with in other biots because the same guy who runs that firm runs that business and the buyout business in 2023 when some of our competitors that were owned by buyout firms were very negative on the world. People had to see that rates would go up forever. If I can fix my return at 18%, I can make money because everyone else thinks interest rates are going to go up forever. I'll do that. Very simple thesis. Sometimes people got caught in their own nonsense because of their connections. That independence is very important right now. There are very few people that are truly independent operators that can scale to seven, eight hundred million dollars in a check that are not impossible to deal with. That informs our sourcing. Because the more and more you behave like that, the more and more people pick up the phone and call you. That I would say is our single biggest thing. Finally is philosophy and humility. I have realized over time”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“First is the funnel. Eight years ago, the team was much smaller. Sourcing was me and another dude. We now have done a fantastic job not only covering the private equity world, industry dives, people, but all the relevant bankers as well. I look at some big brand names in the space and are sourcing compared to some of them is a lot better because we've gone through that journey. We had to transition our business from being a me too ops fund to being someone who does this and someone who does it at scale. The most important thing for me was get sourcing right. I'm not going to win if I don't see everything. That is where we're really differentiated. As a corollary to that, because we don't have vulture roots, I can teach my team do not be antagonistic. Do not fight over stupid things that don't matter in documents. There are four things that matter the ability to put dead on top of you, the ability to take assets away, the ability to take money out of the system, the economic term.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Human brain is a very fragile thing. When things are going wrong, it's very easy to be negative. It's very easy to say, oh, this whole thing sucks terrible, terrible, terrible. It's amazing how things can turn. We were involved in a company that we injected a tremendous amount of capital in with the sponsor in February, March this year to deleverage part of it because we were already in it. People are already pitching, going public, but six, seven months later. And it's amazing how short memories can be. I wasn't in March thinking about this company going public. That's the art form.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Above certain rate of return, you've got to focus on incentives. You can't just say you're a zero, I'm senior. It's not going to work out. People pitch that. I'm like, I don't know what deals you've looked at. That's not how it works. These aren't always friendly, nice conversations, but you want to get there. I've had instances where people like, wow, you know, I'm like, no, I'm being direct because you weren't direct with me. What I value the most is someone tells me, we got a problem. We got to go figure it out. It's going to involve a check. Okay, as long as I know, but when other little games happen, eventually we all get to a good place. That's the most painful thing. And I tend to get involved a lot because my background wasn't complicated by lateral negotiations. Fortunately, those have worked out, but those are difficult because you're writing a check. You still have to have conviction that the franchise isn't broken, that there's value there, that whatever's happening is because of some exogenous temporal thing, and that you need that capital to get through it. It's hard to get conviction around that.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, if we have to inject capital in this company for whatever reason, and I'm more senior, I probably have to write a smaller check than you. Or maybe we collapse the structure and we all own the same thing and we'll figure out how to apportion value. Maybe, Mr. Sponsor, I'm okay if I'm in front of you.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't sleep well. You question your competence. The most important thing is is the business worth saving? Is there residual value? If there's no residual value, meaning pass the debt and you've made a fundamental mistake, don't put money in that. That's the hardest thing to do. Everyone's guilty of it because psychology is consistent. No one wants to admit mistakes and say, wow, I messed up. Thankfully in our business, we haven't done that yet in these transactions. We've done 51 of them. No, there have been instances where something's happened. The company needs capital. for whatever temporal reason and it looks messy, but the overall franchise is valuable. That's where some people don't understand how incentives work. You can't take the majority owner of a company and say, you're a zero. I have all the value at the Hold Co. Have a nice day. Are you going to manage the business? Are you going to show up at every board meeting? Just told the CEO and his team or her team that they're zero too? Come on. Think it through. You've got to figure out a way to say, oh,”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“It didn't sell now. We've had examples where there are a lot of proform adjustments in EBITDA. And people said, I'm not going to pay this multiple and this proform a number. We had made a bet that they're going to come off overtime and their number is going to be more clean. There's different things you can make investments predicated on, but you've got to be really thoughtful. More and more discussions with my team. We'll look at a deal. I'm like, how are we ever going to get out of this? This doesn't seem like a good idea. This seems like giving someone a check and having the same problem in four years. That's what you got to be all over.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Or that they had leaked valuations that weren't realistic that caused people to stay away from this process. Maybe they need two years of proof of concept of one of the business lines that they're pointing to that no one believes yet. You've got to grab onto something. When these checks get to be big, a billion and a half, two billion dollars for equity, these problems don't go away. That's our hardest part of the business because when you're doing straight preferreds, oftentimes they just refinance us out. You are a bridge in the structure between six and eight times if the company does it all well, they're very quickly going to eliminate 16% money. They come to you for speed and maybe they want discretion so they're not going to compete you across the world. There are these mega preferred deals that get done that are a billion and a half dollars where the company has syndicated loans and someone will say, you know, I don't care who's in it. I want to syndicate it and I'll race to the bottom. Fine. But when you're doing something where you're on the board of the company and you have an equity option, you've got to have a view on why.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you're doing that MA deal, you're making a wager that that MA deal is going to be transformative somehow. They're going to realize whatever synergies. They're going to create a different narrative about top line growth. They're going to jettison some part of it that's slower growth, something that's going to change the narrative that maybe will appeal to the public markets, that maybe we'll get a strategic interest in it. That's part of what you're doing. And the second thing is when you're doing what I call the DPI trade or returning capital, sometimes those companies have run processes and they weren't able to sell the company. And you're going to come in and provide them partial liquidity. And it's like, well, why am I so smart? Because they just try to sell it. And why do I think three or four years will be better? I wasn't born yesterday. You've got to do a lot of soul searching as to what's going to be different. It can be things from when they sold it the two or three best strategics were doing whatever. That could be part of your thesis. They were tied up. It could be that there were certain macro things going on.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“You can slowly tease out what gets people motivated. I've been lots of deals where after talking to someone over dinner, I'm like, you're checking out. I'm writing you a $500 million check-in. You want to retire. I don't think we're going to do this one. You have to figure that out. And people don't come out and tell you that. They give you cues. And you have to build up those cues. And sometimes you're wrong because the subtle skill that's taken me a long time to figure it out.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's hard. I have many flaws. I don't know where to start to describe them. My wife could give you a pretty long list. One thing I'm okay at is being pretty direct with people, but doing it in a way that doesn't offend them completely and getting answers. I like to sit down with people and say, why do you do this? Tell me about how you built it and what you were trying to do and tease it out. It takes a while to tease out, figure out what makes someone tick. When I go and meet with management teams, I make sure our team's really prepared. If our team spends the first management learning about a company, we fail. You want to be able to start asking questions where people like, wow, these guys actually spent time learning my business. It goes a long way because people are like, wow, they're interested in what I do for a living. Step one, if you start building that confidence early on, they'll start telling you things. And you're not being argumentative and antagonistic. You're like, listen, I want to learn how this works. I'm interested.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you're underwriting that as your thesis, God, you got to have data, not only data about looking backwards, but what is someone telling you that gives you that confidence going forward? What are you pointing to? That's the hardest thing. The other piece for me is who's running it. That's so important. We've made investments in large companies where the manager team owns half the business and they're extremely wealthy. They want to hop on the phone every two weeks to talk to us because they love it and they live it every single day and they're animals. That is so powerful to have a partner like that, especially someone who's a founder that built the business from scratch. And to this day, regardless of how much money he or she has in their bank account, they love it. They want to do it. That's who you want to partner with. Having a financial guy as chairman of a company, I don't want that. I don't want someone on eight boards. I want someone who lives it and breathe it. On the margin, those are my two things.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Got to believe in the top line. My least favorite theses are value traps. I'm going to fire X, Y, and Z, and I'll be able to create it at X multiple. Other people may do this well in my 31, 32 years of doing this. That's always gone poorly. I will take top line over terminating people, cutting costs all day long. I have to have some conviction, why does it grow? Explain to me why. And it not just, well, I took an Excel and I wrote 1.06 and I kept multiplying it. No, I mean how do they sell this stuff? Do they have real pricing power? Who are their customers? You look in business services. Their sales organizations. I'll spend a lot of time saying, okay, if I'm making a bet on this company's ability to sell stuff, are they well run? How do the salespeople get paid? How does it work? It's top line. Every single time when I'm making investment, I'm never going to pick a point estimate on a number. Where is my confidence interval around seven to 12% growth? That's difficult to do. To grow eight or nine percent consistently over four or five years.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“All of your risk comes from sizing the bets and what you're investing in from the get-go. Once you're in these names, they're private. You can't say whoops made a mistake, I'm going to move on. It's difficult to do that, especially when it's a name that you authored and you have your own investors in it. You can't just do that willy-nilly. You're thinking a lot about risk management when you're constructing the portfolio real time. There's very little you can do once you're long, these names. You're on the board of the company. You got to be really thoughtful about how many risks am I exposed to that are the same.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“That especially with no leverage, but you can't have a hundred names because then you're just doing anything and you're participating in clubs. All of these deals we typically author them and we syndicate them to our own investors, our own platform. You have to have enough scale and have to be able to do five, six hundred million, but you have to be able to size it appropriately in a fund that if something, God forbid, goes wrong, it doesn't destroy the entire portfolio. It's that happy balance, and that's what's hard because you've got to find 25 high conviction ideas and you will scale things based on risk. If something is a massive conviction, love it, someone gave me a free lunch, that's a 4% name. And if something has more drawdown probability, it's going to be a 1% name. You're doing less of that, but you're also thinking about that. And you're thinking about what factor risks you're exposed to. I used to laugh whenever a drawdown private fund has a risk manager. I'm like, well, what does that person do? Because you don't hold cash. You don't hedge.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“We set up these funds, their private equity like their drawdown vehicles. We don't leverage these portfolios. So there's no third-party leverage on the funds. And that's important for a couple reasons. I couldn't get attractive leverage even if I wanted to, because none of the companies pay interest. They're not seniors to trade pieces of paper. My advance rate would be nothing. I would go through all of this, Michigan Goss and get no incremental return. If you believe that you are an alpha strategy, I think I'm getting excess return for doing this. I have some edge, whether it's structural, who I am, whatever it is. But at the same time, I want to balance that because these names are not going to be 5x's or 6x's times our money. If you look at a PE fund, the way it's constructed, sometimes we'll have seven names, have a seven bagger, have a three-bagger, have things marked in the middle and some things aren't so good. And those offset, we're playing between one and a half and two and a half times your money, somewhere in that range. So you want to have reasonable diversification, 25 to 30 names. You're able to withstand a left tail event. You have to be able to do it.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you need another 50, go ahead. That's very valuable to someone to know that you have someone who can move very quickly and we'll have a minimum hold. You can syndicate me out and toll you at X. There are a couple partners we've done that with where we are their partner. We're the silent equity partner, but we have a structure behind it. We've done those a couple times. That's the universe we're in. The one thing I mentioned that we get looks at, we don't want to do bailout capital. We see every one of those deals. I'm sure there are smart people that do it, and I'm sure that there are wonderful funds, but it's difficult to analyze those things unless you are an expert or have operational partners in the industry with a specific view on what the 90-day plan is once you delever, just sitting in Excel saying, well, if margin's got better, I don't think that's a good way to scale a fund and go through life.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Occasionally, we'll do a new buyout. There are some terrific direct lenders that have the ability to do preferred. It's an auction. There are five or six guys competing on it. I'm going to back all of them. I'm going to run five trees. We're going to sequester information. No one's going to know what each other's doing. And we're not in that business. People are wonderful at it. That's a different business. It's a cost of capital business. The business that we like to do is imagine if you're a $6 billion fund or $7 billion fund and you want to do a high conviction deal where you're paying 20 times for something and you've got to write a billion to a billion three equity check. That check is large existentially for you. And ultimately, you're going to syndicate it to your limited partners. Before that happens, what do you do? Sometimes we'll come in and say, hey, listen, this is a big check. We're going to overcommit and preferred. The right hold size is 300 million in this company. We're going to commit 500 or 600. There's different costs for those levels. The bigger the number, the more equity-like return it is, and down it goes. People, when they're in a bidding contest, I'm like, use me as your.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of our book. It's about 35, 40 percent. We've got to be really selective, and we have to have a thesis behind what we're doing. By far, that's the hardest business that we're in”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because you have a lower basis than I do. I need to catch up. That's generally how it's presented. Those are typically converts where you're buying something the greater of some minimum multiple or the value of the equity. That is our hardest business by far because private equity isn't cheap and you're sifting through a lot of assets. If you're doing your job well, you have to believe that Convert has value. The worst thing possible to do as well. I think this is overpriced and makes no sense, but I have a 1.5. That's a good way to lose money because you're going to be misaligned from the get-go and enforcing liquidity rights that you have in documentation. Good luck. You have those things. People talk about for sale rights in these documents because typically you'll have a forced liquidity right. You don't walk into a conference room and say sell. That's not how it works. Typically the management team has to be on board. The owner has to be on board. If it's not going well, that's not going to be a robust auction. If someone knows it's a forced sale. You have to think ahead and you have to think about being reasonable. We do that business occasionally. It's not a massive part.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Thesis is I have a lot of value to Eden to theoretically. You have to be able to eat into something. And if it's a zero, congratulations, you're also a zero. I don't think people understand that concept. Is this business saleable in a couple years? What is the thesis? How Herculean are the assumptions? Is this thing they're buying? Do they understand how to integrate it? Is the team good at this? Have they done it before? Simple things like that. You can assess, does the cost of capital make sense? The deeper you are in a structure, the more you should get paid. The other business is what I call the return of capital business. I'll call it the DPI business, where a sponsor says, I have a winner. I'm going to keep compounding my money. But I have people telling me to give money back. I don't want to sell this company because I still think we're going to make money. There's a way for them to enter into partnership with us when we'll buy 20, 30, 40 percent. They'll take that money. They'll give it to their LPs and we'll say there's one small catch that I'm going to be structurally senior to you. And I want a minimum multiple of my money.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's also something that has done well. Generally speaking, it's probably in the top 10 to 20% of what they own. And their view is whatever I'm buying is going to help me exit in two, three years because it's going to improve the story. Maybe there are synergies. Maybe there's something. Maybe it can help us go public, whatever it is. That's how the puzzle pieces fit together. We like that business a lot. Those investments can be preferred stock, but it's something that just accrete over time. We're going to get paid for saying, you guys are showing up at an auction. You got competition. Here's 350 million bucks. This is my rate of return. It's hard for them to bid five people off each other. And at the same time, call competitors that are in the business who might be bidding on it. That's been a business we're in. That's not an equity bet. All we're assessing there is my detachment point in the structure. At the end of the day, if you think that violence at the Holtcova company is a good idea, it's not. You want the equity to be successful. It may not earn 27%, but you want it to be positive.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't have a background in retail. I'm not going to go charging into a massive retailer and say, gee, if same source sales were higher, it would be great. So basically something we understand. We'll look at the business and say, okay, what are we doing for it? If you look at the two use cases for what we do, it's generally M&A or it's return of capital. And start with M&A. If it's small enough, a private equity-owned company will use leverage. That's most accretive to its equity. However, if something gets big enough and they need equity, it can be difficult sometimes for them to invest in a company that they have marked up in the same fund and write equity check to go do that. If it's a large deal where they need significant equity, that's more challenging for them. We like that setup because typically bigger things are being sold by someone else and there's time pressure. So someone wants to do a large M&A deal, needs some form of junior capital, has structural reasons why they can't write an equity check. Those are but half of our deals.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“First thing when we're sitting down as the portfolio manager for our business, if I don't understand what it is in the first two hours, there's no chance we're doing it. I'm not saying that I'm any great genius. I'm old, and I've been doing this a lot. I've seen a lot of these business models. If I can't figure out what it does or I have to make a bet on technology or a bet on some commodity price, it ain't going to happen. Then we'll look at things and say, do we have any view on the three or four major top line trends here in this space? Some industries were not very bullish on. Some we think are more attractive.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Have you thought about getting liquidity in something? A lot of times we actually have great data on things. If I call up and say, hey, my name is David, I would like an 18% convert. That's not a very attractive pitch. If I call up and say, hey, here's five pages of reasonably thoughtful stuff, take a look at it. Here are the last ten deals that we've done. That gets people thinking. There are bankers involved. But when you're doing these hybrid deals, it's not an auction because you're still going to be invested with that owner in the company. They don't want anyone in the boardroom with them. It's a narrow handful of people they want to do business with. You want to be one of those one or two calls because they're only going to call a couple people. That's how it all works together. As your team...”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“All of your own diligence, you're not going to rely on someone saying, Well, I told you you're going to hire your market study if you need that stuff, parts of it. You're going to hire your own account if you need that. But do it quickly enough because you understand the basics of that industry and what to look for, and then speak with conviction and size. That's how you earn excess return in our space, waiting for someone to syndicate risk to you is not how you're going to do it in these capital solutions deals. The platform enables us to get to that deal partner that we don't know because, oh, we're also an LP. Gee, oh, hey, take my call. Generally speaking, I'm not a competitor. There's a part of our house that is an investor. They're going to pick up my phone call. And it's incumbent upon my team to figure out build a relationship. If you couple the LP relationship, no one gives LP-free money, but access, trust, non-competition. And then our ability to get deep in industries and then liaise with deal partners, we constantly outbound them with, hey, I noticed you guys were trying to do XYZ last year. Do you want help?”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Services, parts of software that we can understand, parts of healthcare that are underwritable. Then we'll get deep in those industries. We'll do the conferences and we'll get to know that individual deal partners at these PE shops and start talking to them about what's going on, what deals have you worked on, what are you thinking about? Then you get deeper. And what happens is, oh, I need to go get something done. I need capital relatively quickly. Who do I trust? That's powerful versus cap market's guy who's trying to get you down in cost of capital. We use that to our advantage. Our counterparties are smart, sophisticated, the best in the world at this stuff. If you give them enough time, you will lose. Every time you will lose, they will take your face and drag you through the mud and make you eat the mud. However, if you can say, I can get this done, 400 million, 500 million, three weeks. I know this industry. I've looked at before. And that's the combo you want. Do you know your area is well enough?”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“It depends on what you're doing. If you're sourcing a direct lending transaction, you want to be in front of the capital markets person at a private equity firm. And that person's sole focus is to go out and try to secure attractive cost of capital because that market has become more mainstream. Those capital markets people know the people to call and know who could speak for what size. I don't want to say it's perfunctory, but it's a relatively straightforward process. When you're doing these hybrid instruments, we don't want to talk to the capital markets guy because generally we're expensive. If you're talking to someone whose sole purpose in life is to get the cost of capital down, that's not a good place to go into. What we want to do is traffic in a couple industries. The reason why that is, is there's nothing wrong with being an automotive supplier. There's nothing wrong with being a commodity chemicals producer or drilling for oil. All those things are terrific. Buy equity. If you're going to go do that and take some risks like that, don't do hybrid capital in things that have more volatility or extremely capital intensive. And so we'll mine parts of business.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Equity funds on the fund to fund side to do syndicated co investment to pricing minority equity to doing prefs and hybrids and converts, direct lending, all of those things in scale across the private equity ecosystem. So that's fairly unique.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Scale, as I mentioned, our funds don't have to be $14 billion individually to do a deal. When you raise a $14 or $15 or $16 billion fund, it's challenging because you got to populate it and your money isn't there forever. Our funds typically are more reasonable in size, but we have so many different pockets of capital on our platform that we can scale. We can do a $7, $8,000, $900 million investment, and there are different people want different exposures without having to raise a $20 billion vehicle to do that. There are different sides of the house. We actually all get along and many alts firms are siloed. There's a lot of people that have competition, that have issues with each other. These relationships go back a very long time. Tony, Tutron, who built our platform, did a wonderful job with people and with motivations and incentives. And so there is collaboration. That's very, very powerful. The ability to work together to figure things out and say, hey, this could go in this pocket and this pocket. And we'll figure out a way to slice this up. Our platform does everything from invest in private.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Newberger Berman is a $500 billion plus or minus asset manager. We have traditional equities, traditional fixed income, and we have alternatives business. The business is roughly $150 billion today, give or take. The roots of the business were there was a fund of funds a long time ago. It branched into co-investments. We built a secondaries business. We have a direct lending franchise. We have a cap solutions business. We have a specialty finance business. The thesis was we're not going to do control buyout. We can be a provider of capital in this ecosystem. The platform invests $5 to $6 billion a year in private equity. People know us. People trust us. We're very relevant. We're both in the US and Europe and in Asia. It starts with relationships who you know. Private equity guys are smart. They're good at capital markets. They don't become successful by giving people free money. I'm pretty sure that doesn't work. A lot of that helps you get in the door and give you access. And then it's what you do with it. Our platform is powerful because”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Here's the range of stuff to do. This seems relatively more attractive. That's the key to doing this. It sounds simple. When you're buying public stocks, you know your universe. It's there. You can be an introvert sitting in a room and being very good at. Our business involves something different. You got a source. There's still inefficiency about sourcing. Do you know a management team? Do you know XYZ banker who's your friend and you had a drink with four nights ago at some event? Those things all come into play as long as you work that system and get a reputation for being someone good to deal with, someone who'll close on deals, someone who doesn't retrade people, it's virtuous. You get to see more and more stuff. That's how I thought about if you're going to build a business up scale, you've got to have some advantages. And you got to have reasons why you get paid. I would like to tell you that I can predict the future. Sadly, I cannot. That's been our business model for the last seven, eight years.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“About returning capital, about doing things that are not just pure intellectual sitting in a room doing the thing I would do if I had unlimited dollars and building a theoretical portfolio, you have LPs, you have different motivations at stake. You have funds that are in the carry, not in the carry. These motivations influence decisions about when to return capital. That's a nice thing to know. In finance, there are some people who historically been incredibly talented about spotting trends, about seeing around the corner. What's nice is to have a handicap. If you have sometimes structural inefficiency, it goes a long way to building a scaled business. The other thing that we bring to the table is a lot of people entering this business are competing with other private equity firms. We are neutral in this space. As a result, we get looks at a lot of things. You can be the smartest person in the world. And I'm not, but you can be if you see three bad deals a year, you know what you're going to do? Three bad deals. It's nice to see 300. We're like, oh.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because allocators looked at them and said, You're neither fish nor fowl. I got my credit guy, and that's a yield. I got equity. And equity's equity. I remember talking to insurance companies in 2021. And the first question was capital charge. I care about how much money I got to put down. Well, you look at our fund, it's probably going to be equity treatment. They're like, well, no, my equity book returns 30%. And I'm like, it does. I should do what you do. And of course, now today, like, can you do 10? That would be amazing. There are people that have different variations of this theme. The big push is there's $3 trillion, $4 trillion, whatever number you believe in unrealized private equity nav out there. It's a big number. Private equity will become interesting again. The regular buyout business is going to take a couple years for that to get fleshed out. We're addressing the nav today. Because there's so much of it, at least there's opportunity to sift through it and figure out what's interesting. And then the other thing I like about private equity is there's a whole bunch of weird structural inefficiencies about raising funds.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source
“Quality assets. If I was going to be junior capital, I wanted to sleep at night and I wanted to write checks with conviction and say, this is a great company. Our whole premise was, can we get in really good companies? Can we be in a part in the structure where I think there's massive room for error? Maybe the company isn't worth 17 times pro forma adjusted EBITDA. Maybe the guy who's going to take that risk is the guy who owns the equity. This is going to sound basic, but if a company's marked at 16 or 17 times and it has six times leverage, that means there are 10 turns of equity. If multiples come down by two turns, you just lost 20% of your money. I didn't want to take that risk. Our premise was, can we get into a really good things that are good industries, good companies that are well run, and figure out a way to shield our investors from what's happened to private equity? That's really how we pivot, and that's our model. We have a few competitors who do that at scale. What's unique about what we do for a while was it was difficult to raise these funds.”
2025-11-17 · Capital Allocators · David Lyon – Hybrid Capital Solutions for Private Assets (EP.471) · IDENTIFIED FROM THE TRANSCRIPT · source