YouSaid · the spoken record

Greg Lippmann

lines on the record: 68
first: 2022-09-12
most recent: 2022-09-12
sittings or episodes: 1
sources: podcast

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“I would say two things that are like the opposite. One, as it relates to investing, and I think I exhibited the opposite of this during the subprime time, but like if you have conviction, sort of stick to it. And maybe earlier, I wish I had stuck to some things before. It relates to running the business. I would say, you know, don't be afraid to make changes. I think in some cases we gave people more time than we should have to sort of blossom.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Never forget where you came from, treat everybody the same. My father was great at that. He was conceived in Germany. He was born here. He grew up speaking German in the home and eventually he had the modest amount of success and he never forgot where he came from and he treated everyone the same and I tried to do the same.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Perhaps as a dead investor, I'm more focused on what can go wrong than what can go right. So it's important to understand the upside and maybe there are times where I shoe things that have great upside because I'm focused on that they also have a big downside.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say short, complicated, illiquid that yields a lot. So where we feel that we can understand the risks and the risks are more than amply rewarded because of the complexity and because of the liquidity.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say my father, who taught me the value of hard work and being honest and never forgetting where it came from, he wasn't really my boss directly, but a tough love from someone in the bank who taught me indirectly you got to figure things out for yourself and you got to manage your own destiny. And I'd say this when I met people when I was at the bank or even here, like this isn't summer camp. Like we're paying you. You're not paying us. So like figure out, and that's what I learned from him. Figure out how to add value. And then along the way, we'll train you as opposed to it's our job to train you.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Intellectual dishonesty when people sort of pitch something, the downside is still a fantastic return. What are you not understand that you think that this can't go wrong, right? Because we invest in generally below investment grade assets. So they're not guaranteed to work or they wouldn't be rated B.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Four kids, it's hard to have that much outside. I love exercise. I love reading. I like listening to podcasts while I'm exercising.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“That I've never met. I don't love that the parents of my children's friends feel like they already know something about me when we first meet. I don't love that. But I certainly don't think I was portrayed as somebody who wasn't smart. And so I can't complain. And like I said before, you can't really complain if one of the sexiest men alive plays you in a movie. It's hard to complain about that.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, first of all, the experience is not over. And I still to this day occasionally get emails from people who were like, I read the book or I saw the movie and I want to be your friend. Or can you give me advice? And I sometimes forward them to Mr. Lewis. So the beginning of the book, The Big Short, he said, well, he wrote Liar's poker as a cautionary tale. He didn't want people to go into Wall Street is what he thought. And people read that book, including me, and said, this is exactly what I want to do, right? So at the beginning, the forward to the big shore, he said, well, that's why I wrote the Liar's Poker to get people to not do it. My hope is with this book that people won't want to go into this industry. And so some of the more interesting emails that I get, I forward them to him. I'm like, you did it again. You wrote another book. So I'm married. I have four children. I'm not really interested in being particularly famous or anything like that. I don't have a big media presence. And it's weird at times when I'm checking into the airport and the person next to me hears my name and they say, oh, you're the guy from the big short. Like I said, I get sort of emails from people.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“We have lots of different funds that have the ability to call capital at different times. If you can call capital when people are selling and as a regular way hedge fund, that's a difficult thing to do, right? As a regular way hedge fund, actually your investors can call their capital back when they want, right? So when things are going awry, really ramping up your gross exposure is a tricky thing to do unless you've got it all right. So we've tried to address that as a firm by raising capital that can be called as opposed to can be called away from us that we can call investors to give us that money. And we did that somewhat successfully with some of these types of structures in 2020.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of saying, hey, the odds are in my favor. And because of the esoteric nature of it, because of how leveraged they are, because the fact that there's so much uncertainty right now about the path of interest rates in the economy, are we having a recession or not? Is it going to be a minor recession or a massive recession because of the regulations on the banks about holding these assets from a capital charts perspective? And Dodd-Frank, there's opportunities for us to be a liquidity provider. So I think one thing that's very different today is we're running a much lower growth than we were before. By before, I mean before this year. We historically as a firm, we're kind of 120 to 140 gross. And when you're 140 gross, it's difficult to be a liquidity provider when things go wrong. Our gross now has been more in the neighborhood of 90 to 110. And we're at a place where we feel strongly that if June wasn't the low, if there's another bout of selling and whatnot, that we'll be able to be a liquidity provider and make a lot of alpha there by being able to respond quickly, by having capital. And as the firm has grown,”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of a force for Lower Vall, they're going to be a source of higher vol. You're already seeing this with the waffling about different things about are they going to ease next year or not and obviously not a year ago today, they said they weren't going to tighten it all in 2022. So what happens is these bonds are generally pretty levered. We're talking about we mostly buy subordinate parts of the capital structure. bonds that have not binary outcomes exactly, but really leveraged outcomes, right? So bonds trading at 50 and if this, that, and the other thing happens, it's worth 75. And if things are a little bit worse than we thought, they're worth 25. So constantly you have, if you can put yourself in a situation where you feel confident that the odds are skewed in your favor. So either it's 50-50, that it's either you buy something 50 cents and it's 50% chance it's worth 100 and there's 50% chance it's worth 25, that's a great place to be. Or conversely, where you say, hey, I bought it at 50 and there's a 75% chance it's worth 75 and there's a 25% chance it's worth 25, that's a different way of the same thing, right?”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“But financial markets are doing poorly, which is kind of what happened from 2000, 2002, and what's happened so far this year, then we're going to have a world where our longs are going to be buffeted from time to time by the sell-off in broader markets. But ultimately, people are going to look at the delinquencies and losses. They're going to say these assets are going to be okay. And our hedges are going to do well. So I'm pretty confident of that because of what's happening with inflation and geopolitics and reshoring that the Fed is moving away from a role of propping up financial markets to a role where they're going to be fighting inflation, to a world where the federal government is going to be more focused on helping regular people through a variety of programs, which they've already done, gas tax holidays and things like that. Those are environments that we should do well. But if we have a situation where unemployment soars and the stock market still goes up, that's a bad one for my strategy. And I think we're entering into a more of a volatile time in the economy right now. And like I sort of alluded to, where the Fed is going to be.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“That was one where high yield blew up and tech stocks blew up and structure products kind of muddled along and they did okay. And if you were long structured products and you were short high yield with some equity options as sort of a hedge kicker like I am now, you did amazingly well because structure products did all right and your hedges did phenomenally well because they went down right and that's actually kind of what happened in the first half of this year, which is that structure products did okay in aggregate they were down a little bit, but the S&P was down a lot more, high yield was down a lot more, right? So if you were long structure products and you had hedges on, you could have made money. We were profitable in the first half of the year because of that.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“A great question. One thing that's scary about this is anybody can listen to this at any point in the future. And so it's scary to think, you know, for sure at some point, whatever I say right now is going to be wrong, even if at other times it's going to be right. So I would say that I'm pretty excited about the opportunity right now in securitized products. And the reason I say that is I think that the structure of the market, of the consumer writ large and structured products in general related to regulations posted the crisis and whatnot is the US consumer he, she, they look lot more like they did in 2000 or even at other points in history. And I would say the corporate sector looks as sort of levered or fragile as ever. People always fight the last war, as the saying you hear all the time. If you say the GFC was the last war, the GFC structure products, particularly mortgage-backed securities, were sort of the worst thing to be in, right? They blew up and they took a lot of other things down with them. But if you go back to the 2000 crisis,”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“So these markets change over time, or certainly at an interesting economic and financial market period of time right now. Some years ago you were able to look at the assets that you were mostly owning and see something that was very different from what other people saw. And I just would love to ask the question about what risks you're seeing in your markets today.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“You as opposed to on the rating agency. So a lot of times some of these more esoteric and illiquid things that were purchased by a small number of investors when they were bought, if somebody has to sell that investment in the future for whatever reason or the person left the firm and the new person just wants to clean house and they want to start fresh and they want to get out of whatever was bought before them There's only a handful of people that actually bought it originally And then a small number of people were like, hey, I'm going to do the work to understand this thing that was issued eight years ago, two years ago, whatever it may be, and try to really understand how it works and how has it been working, meaning how has the collateral performed during that period of time. And so those can be really attractive situations where there's a seller for any of the number reasons. And there's only a couple of people that are willing to buy that asset.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Over time, a lot of talented people have left the street and set up their own shop. Some people have left the street and worked for these big multistrats, which is a different kind of business model. There's maybe a dozen, two dozen hedge funds do what we do, and a handful of mutual funds that are very sophisticated in the space. Another thing that's interesting to talk about is the secondary versus the primary market. Think about insurance companies pretty active in our space in the primary market, not really active at all in the secondary market. When you buy a primary market asset, you're buying it, it's freshly rated. If it doesn't work out in the long run, you can sort of say, hey, when I bought it, it had just been rated whatever by Moody's. One of the things I've made money on for 30 years is that the ratings are very, very stale. And sometimes they're stale too good. Sometimes they're stale too bad. But if you're somebody who's a new issue buyer and or you're sort of incentive structure is different than ours might be, you don't really want to buy secondaries because secondaries now the credit rating is on.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Really, and obviously, you have giant firms like Pimco that certainly do what we do in some ways, they have a lot of resources we don't have. In some ways, we can be more impactful on a specific trade than they can be to a fund that we're managing. So that is, I would say, our relative edge. So we have a big enough team to do this appropriately. We have enough AUM to do that. And that is part of the business.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things that's great about the space is because it's so data heavy, it's pretty expensive business to run. So when you compare it, say, equities where anybody can start a hedge fund with $300,000 from their uncle sitting in their apartment and reading Barrons, and if they're good, they can eventually have a huge fund. We spend millions of dollars a year on data and on a team to sort of process that data and then on each of the sector heads where they're reading the documents and they're parsing the structure and understanding this. So it's really difficult to do what we do. under 500 million of AUM. It's pretty much impossible in my opinion to do it properly and to do it properly is to pay for all this data. What's interesting about it is none of its insider information, but it costs money. Anyone can buy it, but it's not free. So that's very different than like reading 10Ks or other stuff in the equity space, which is free for anyone to read. So we have a certain amount of barriers to entry in the space. I think, therefore, there's only a handful of dozen people.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is the team you have in place that's required you're following all these different assets, your underwriting them, you're also talking to the market and the banks to kind of figure out where their opportunities?”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Faster or slower from a prepayment, from a default perspective. One interesting trade to do in commercial mortgages is to buy interest-only securities, where if there's a delay in the refinancing of a property, the value of those soars because they only get interest. And as soon as the property is refinanced, they're shut out. Whereas if you can put some of those together with things that are more credit sensitive in a time where it's hard for properties to be refinanced, that's bad for the credit sensitive bond. It's great from the interest-only bond. So what's exciting about structured products is there's this huge array of different types of bonds, both collateral points in the capital structure, how leveraged they are in the capital structure, the things that make them go well and go poorly, and try to fuse that together. So what we want to...”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a lot of ways to slice and dice the portfolio and to construct it. And so some of the computer system stuff helps us to stress test and shock the portfolio and see where does the in aggregate the portfolio do well or do poorly. And what we're always trying to figure out is can we modify our risk more cheaply internally? And what I mean by that, so like simple examples are some mortgage bonds do well when prepayments are high and some mortgage bonds do well when prepayments are low. So if you can buy the ones that do well when prepayments are high from people that are afraid prepayments are low and the opposite, you can get to a situation where you now have two bonds. One does great when prepayments are high and the other one does great when prepayments are low and they both do decent when prepayments are middle. If you can fuse those two together cheaply, you now own something that is somewhat indifferent to prepayments. So we're looking across collateral type rating structure. Are these bonds that do better when things are”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think that's a combination of acumen and experience, right? So the team is reading the documents for themselves, the team has their own anecdotal view about different collateral types, loan types, geography. So we really like multifamily in the southeast and we hate malls in the Pacific Northwest or whatever the case may be. So the model also reflects that, but the human has a view of that as well. And then it's at the sector head level, looking at the Ponopoly of potential returns and saying, you know, we feel good or bad about the upside and the base case and the stress case, if you will. And then there's the direction for me on high about the things that I want us to look at at any given time.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“A quant shop in the sense that we don't take that price. But what we use this for is a sifting mechanism, right? So we'll put 10 bonds through the system, and that system will say, hey, I think you should buy these five and you should avoid these five. Then we'll look at those five more closely and see what the humans think, right? So we're not, the machines help us figure out which opportunities to look at. I think a key part of success is which opportunities should we look at. So first of all, do we think the price is probably attractive? How competitive is the situation? How big is it going to take us to have confidence in what we're doing, right? So if we can't make a lot of money and it takes a lot of time to do it, we should skip that one.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of my partners, Glenn Prello, runs an analytics division for us. And so we have a team of computer quant people that are building models that can quickly sift through the loans now. And I mentioned this before. Back when I started, each bank had their own internal software that valued these bonds. Now there are companies that sell those. And the good news about it is that everybody is looking at the same thing. And occasionally our guys are able to identify that there's a mistake because somehow they've read the document and the way that the structure works and this third party software is not consistent with that. And that's obviously great if we see that. Well, it's really great if actually the bond is worth more than the third party software says and it's great to know it if the bond's worth less and to not buy it. So we have a robust team that builds models that can sift through the loans quickly and make different kind of AI related predictions about defaults, prepayments, whatnot. And so that model will say, hey, this bond's worth 80 or 90 or whatever the case may be. And we know where we can buy it. We're not.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Economic reasons. They're saying, hey, if I don't sell this aged inventory, I'm going to get a huge penalty. So it's cheaper for me to sell it cheap today than to get this huge internal penalty, right? So we live for situations where people are doing things for non-economic reasons because of capital charges or age inventory or where we can be the partner that responds quickly and favorably to banks. There's a seller of this or we have limits on our risk because of Dodd-Frank and whatnot. So we can't position this. This bond's really cheap. This guy's desperate. If you can be quick with a reasonable price, you can buy it. So that permeates the whole business and that has nothing to do specifically with RMBS or CMBS or Double B or single A. That has to do with just there's a lot of inefficiencies and opacity in the market and we try to position ourselves to one, have the relationships to source those assets, two, to behave in a manner that people want to work with us. And then three, to have the internal technology to run.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Loans backing in, things like that. The other is it remains an over the counter market, which basically means there are situations all the time where a bank in Japan or an investor somewhere in the world or the US, they need to sell an asset and they call an investment bank. And that investment bank calls the people that they think are most likely to buy it. Whereas if Facebook stock crumbles or the tenure note soars, everybody knows that. And so no one can sort of maybe you can be right or wrong, but you have no knowledge of a situation that no one else does, right? So here banks that show you assets enable you to buy things potentially at prices that are really, really attractive because of the lack of number of people looking at it. It's also the case that there's a lot of regulation remaining in our space. Some of that relates to Dodd-Frank, some of that relates to leverage on banks. Our team is mostly investors who worked at banks. We know how banks work in terms of aged inventory policies, regulatory capital charges, things like that. So there's lots of situations where people are doing things for non-existent.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure, it's a great question. I would say, first of all, the derivative market is a shadow of what it was back then. I think people sort of learn. Like if somebody wants to bet against something, they might know more than you. So we are now at a place where the majority of our hedges are more macro like than micro like. Certainly there's the odd time where you can buy a residual and buy puts on the company that their main asset of the company is the residual that they own pro radar with you. So there are specific bespoke trades, but mostly the hedging is more macro than micro at this point. That's one thing that is different. So it's back to sort of how much do you like them on the long side than like them or hate them. And guess what I would say is one thing that is really attractive about the space is the esoteric nature of it. It remains somewhat resistant to sort of the quantification of most of investing. Some of that relates to each deal is different. So it's a little bit harder to do that because where it is in the capital structure, the specific”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Just on student loans, it was a private equity more kind of structure in terms of locked up capital with a date certain on it. We were able to raise some money for that, which was returned profitably with returns in excess of the original hurdle and whatnot. So we've built a business over time that has a variety of different funds. Some single investor, some single strategy with different types of liquidity. So as the mortgage trade evolved,”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I would say, I mean, there's two different things. One is the focus on our original hedge fund and growing the business, and two on the asset classes. So like when we started RMBS was maybe 75% of our assets. And it's mostly been somewhere between 15 and 30 for the last handful of years, right? As the R&BS trade became less attractive relative to other things, we moved into other things. I'll give you one example. Student loans really lagged the recovery and we looked at the student loan opportunity a few years after we launched the company. We said, this sounds like subprime. In the subprime case, people said no one's going to pay these mortgages. 80% of the people are going to default and we'll recover nothing. And there was a period of time where people said all these student loans are bad. Everybody owes $200,000 and they work at Starbucks. Again, it's not a question of good or bad. It's a question of how bad. So we first of all increased significantly student loans at one point where 30% of our master fund and they were like zero when we started the company. We at one point did one of the first of our sort of bespoke funds where we did a fund that was”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Being better than worse. You were buying them to a 12% yield to 85% of the people defaulting on their mortgages. Could it be more than 85%? Maybe. But not everyone is going to default. And as it turned out, like 40% of the people defaulted. A lot. But what you learn in investing is it's not if things are good or bad. It's all about are things better or worse than expectations. And at the time, the expectations for mortgage-backed securities we felt were just too conservative. And there was a lot of room for things to get better and a lot of likelihood that things would be better and not a lot of room for things to get worse. And so when we started, we were very focused on the R&BS trade. And we told people we would expand across structure products, which is what we've done.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of my pet peeves is people call structured products a trade as opposed to an asset class, which I disagree with, and I think that, first of all, I've been doing it 32, 33 years. So it's been a life for me, not just a trade. When you start something, you can dub yourself whatever you want. And either people give you money or they won't. But one thing I've learned in the 12 years, it's very hard to then change. You can claim anything you want to claim. But afterwards, if you try to change that, people say, well, that's style drift. So we said, if we're focused on what we do, we'll attract assets not really thinking that down the line if we'd said, hey, we're really smart people and we could do anything and we could buy Greek bonds if we want and we could buy Malaysian equities. We can't do that now because we didn't say back then that was something we would do. We were very focused on structured products and we think there's this great opportunity more expected securities right now. You can buy them to a 12 or 14% yield to really ownerous assumptions that have a lot convexity to.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“That initial investment strategy, whereas you mentioned. You felt like you could own a bunch of assets that were going to be worth a lot more. And that sounds like a medium-term, kind of tactical trade compared to a more evergreen investment strategy.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Write a list of the 20 most likely and the 20 least likely, I would have got like three right, like three of the 20 most likely gave me money and 17 of the 20 least likely gave me money, which was really an interesting psychological experiment just to see how people repay a good turn and who does and who doesn't, things like that. How did you set...”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Could raise money part of Michael Lewis's book. Two, we thought that the asset class was really attractive in the aftermath of the GFC, that returns would be sort of easy in the beginning. And those two things put together, we'd have an opportunity to raise money and we'd have good returns for a few years, and then you're off to the races, right? A lot of institutions want to wait until you're in three years in business. And so we thought we'd get off the ground and we'd have at least three good years. And then we'd see where things went from there. Truth be told, I just got to a point where at the bank I felt I wanted something less bureaucratic. I wanted less red tape. I wanted to see what I could do as an entrepreneur and take the chance of seeing how it went. When I started my fund, I went to many of the people I had done the short with and sort of said, hey, I'm starting this new business. You're a big hedge fund guy. I made you some money back then. Could you put some money in my fund? And quite a few people did. But if you had given me the list of, say, 40 people I called and you told me.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“My father was a small businessman. I always had a certain amount of interest in starting a company. I think inertia is a very powerful thing, right? You have a job at a bank. It pays a relatively good salary. None of the risk is yours if you lose a lot of money. You just get fired. You don't lose any money. You don't have the hassle and the risk of setting up a company was really for me in the beginning for a while and still to this day. Like this desk, I own this desk. And if we ever close Livermax, like I'm going to sell this desk for something. And when you work at a bank, you own nothing. And so that was different. But the inertia of not starting it is one, I have a good salary, two, I don't actually have to go find desks to buy. I don't have to rent office space. I don't have to hire a compliance department. I don't have to do anything. So while I had this sort of interest in starting a hedge fund for a long time, the inertia of working at a place where most of that stuff is taken care of for you is powerful and you're making an income and whatnot. And then after the great financial crisis, we had a certain amount of notoriety that I thought.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Was this wave at the time of all these types of assets sitting on bank balance sheets and now sitting more in the hedge fund community, you effectively participated in that by switching over? What was it that caused you to want to form your own hedge fund?”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think one of the things that makes it exciting to do it right now, and I think a reason that there's a lot of alpha that can be mined there is you can sort of slice the universe a bunch of different ways. We have four sector teams, and each of them is manned by a person. So our sectors, the way we describe them are consumer ABS, RMBS, CMBS, and CLOs. And that's sort of one really simple way to do it and say, hey, we're 25% R&BS and we're 35% CMBS or whatever the case may be. And a different way to look at it would be just Another is, well, the 2012 one, it has none of the same characteristics as the 2022 one. So there's all kinds of different nuances in the space to express one's interest in investing.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. I think basically it had always been a small insular side market. And then as a result of what happened during the big short, lots of multi-strategy funds heard about structured credit in many cases did the short. So they understood it now in a way that they hired people now. So it became something that used to be completely unrelated to broader markets and had its own little group of people that invested in it and they were only tangentially interested in what happened to other markets to something that became more integrated. And when you think about these large multistrat funds where they're buying high yield, they're buying equities or buying emerging markets or buying structured products. And so they're looking constantly at the relative value of the different things. And so I think that our market has become more integrated in other markets and therefore the price moves are somewhat more connected and correlated than they were back then.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Before we get into your transition to forming Libra, what was esoteric credit became this more established structured credit market? And I'd love to hear your perspective on how that transition happened.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think patience is one of the most important things for an investor to have. So I think not trying to hit a home run all the time is an important skill and discipline and not the one that everyone has. So that would be the first thing I would say. And ultimately, look, I think that in the same way that the short was a time where you said there's an asymmetric reward in terms of being short them because you could only lose so much and you could make a huge amount. And when the bonds were trading at 20 cents, 40 cents on the dollar, it was an asymmetric reward the other way, which was that they're not worth zero because they pay some amount of interest. They're not going to be worth nothing. And if actually the defaults are not 80%, but 40%, this bond that I can buy at 30 cents on the dollar, worst case, we're worth 15, best case worth 70. You sort of start to say, I'm either going to double my money or I'm going to lose half my money. And I think the chances of me doubling my money is much greater than losing half my money. You're supposed to do those trades.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Where I am now, I understand it more deeply than I did that. I mean, I had to maintain my position at the bank and not everyone at the bank agreed with it at all times. I ultimately had to, if anything, say, you know, I'm not taking it off, fire me if you want, but I'm not taking it off. But as a hedge fund manager, it's a lot harder, right? Because people just send in a redemption notice and they're saying, I'm not talking to you. I don't want to hear what you have to say. I'm just redeeming. So I would say that in some ways it was easier for me. I mean, some ways it was harder because I had one investor and they had daily liquidity. So that's different than a hedge fund where it's quarterly and you have a variety of investors. But I saw the people every day that were my investors and in some ways it was easier to maintain than when you have investors all over the world who don't necessarily want to hear from you.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“It didn't feel like all of a sudden it was on the silver screen for sure. What was an interesting experience was sort of fighting to maintain a position and then just a few weeks after that being on the cover, the Wall Street Journal. So I went from being chicken little to cover the Wall Street Journal in just a matter, maybe not days, but certainly not more than weeks. So that I would say the time to Mr. Gosling playing me in a movie that was a little bit longer than that. And how does that feel? I mean, it certainly There's a lot less appealing people to play you in a movie than Ryan Gosling. So I guess I'm grateful for that.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you go full circle, you start getting into the business reading Liars Poker by Michael Lewis. You're doing this esoteric credit stuff. And a couple years later, Ryan Gosling's playing you in a movie. What was that experience like going from trading stuff and fighting the crowd to getting something right? And then all of a sudden it's on the silver screen.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Supply of those names, the names of the broader market thought were not so good. There was less of a supply. So the guys that almost got too smart for their own good, they were focused only on shorting the worst ones, of which there was a limited supply. So it was fascinating to see how people reacted.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Was a really fascinating experience in that people do all different kinds of things. You had people who would say literally a couple of hedge funds said, well, this is a three-door long shot. I only do things that I think make money. And I would say at the beginning of each of these meetings, my goal at the end of this meeting is to convince you that this is no worse than a three to one long shot. I'm not even saying that I think it's a three to one long shot. I might actually think it's going to happen. But I just want to convince you it's three-to-one long shot and explain to you why it's a six or nine to one payer. And there was the odd person who was like, I don't do three-to-one long shots. I'm like, but you understand, it pays way more than that to people who clearly didn't really understand what I was saying but understood, hey, wow, this is a six or nine to one payer. This guy's really excited about it. He seems kind of smart. I'm just going to throw a little bit in to people who got really in the weeds and really understood it almost to their detriment because what you could do is the names that the broader market thought were good, there was an infinite supply.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“And as you went out and shared the trade. With, say, people in the hedge fund community, what did you find in terms of the different appetites of people to invest in something that was so counter to common knowledge at the time?”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“February of 2007, the prices started to move, and I began to have a little bit of notoriety for the trade. So I had been involved in the trade for over a year before it worked in any sort of meaningful way.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, 2006 was a year where it didn't work in the sense that as everyone knows the adage, right? In the short run, it's a voting machine and long run, it's a weighing machine. So the year of 2006 was a year where it was a voting machine and there was people I'm sure remember the conundrum that Greenspan talked about and that rates were low and people had to there's excess savings glut and whatnot so worldwide people were looking for spread products and so on so 2006 I would say was a year where the voting machine won and the price of these assets even as the fundamentals began to deteriorate didn't move.”
2022-09-12 · Capital Allocators · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · IDENTIFIED FROM THE TRANSCRIPT · source