YouSaid · the spoken record

Isaac Corre

lines on the record: 66
first: 2023-10-16
most recent: 2023-10-16
sittings or episodes: 1
sources: podcast

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“I think, despite what I said about my year as farmhand, I think really the importance of physical fitness and recovery to one's life. I grew up in a very, very academic environment. I was taught to read two languages before I was three, but sports were just not something that was on the radar screen. I'll never be an elite athlete, but I realize now that it's so important for your mind and for your well-being to be active. And if I could have learned a sport and excelled earlier in life, that would have been great. And I didn't. And I regret that, but I'm doing my best now to make up for it.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“When I was launching Governor's Lane, I was talking to actually the wife of a cousin of mine who is a very, very senior person at one of the premier consulting firms. And she said to me, who's going to say no to you in your firm? I thought that was a really, really good piece of advice. I had to find people to say no to me, and I succeeded.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a hard question for me to answer. First of all, I've been doing this for a long time, and I had two very different careers. And I had some great mentors, including Arthur Lyman, in the legal profession. I've had some great mentors, including Eric Mindich in the investing profession. So I'll quote the Talmud. There's a saying some rabbi said, that I learned a lot from my teacher, more from my colleagues, and the most from my students. And I feel that way about my career. I've learned a lot from my mentors. I've learned a lot from my colleagues. But it's the people that I trained who then become my colleagues. Those are the ones who I've really learned from. So whether it's Bruce, Danny, Fennell, those are the folks who really, in the last eight years, have just had an enormous influence on me and have changed things that I thought for 24 years of my investing career. It's really that that has been the biggest influence.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Stick to investing. I think people fetishize multiples, and so often you hear people tell you, oh, the multiple is so low we should be long, or the multiple is so high, we should be short. And multiples are a very reasonable proxy for the market's estimate of the net present value of the future cash flows of a business. But all a multiple should do at first is make you ask the question, why is the multiple there? Why do we think that's too low? Why do we think it's too high? And just the idea that the multiple is some exogenous thing that the market slaps on a stream of earnings just drives me up a wall.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't like turkeys. I grew up. My father was an academic. My mother ran a group of healthcare facilities. I really came to respect agriculture and manual labor. There's something about the end of the day after doing that. You just feel like you've really accomplished something. And the people who do it and the people I did it with were incredibly thoughtful people, someone who grew up around the university. You just forget that there's thoughtfulness and genius and imagination all over the place.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“I read a lot. I've been trying to teach myself chess, which is really one of the most humbling things I've ever done in my life. And losing to 10-year-olds online, it's good for the soul, but it is very humbling. But mostly reading, I also try to spend a lot of time on fitness and exercise and yoga and mindfulness and all that kind of stuff.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“I really want to stick to our heritage. I can see the idea of expanding our product offering. Some people want only a merger product or some people want only a credit product or a venture inequities product. We think about that as something that we'd like to do. But at the end of the day, I think that what's so critical to us is our success as a firm is the culture and making sure that we're always making capital decisions that are optimal. I want to grow responsibly, recognize the fact that the graveyard of hedge funds is filled with hedge funds that did what we did and got too big and to grow with discipline in a way that allows us to continue to maintain the culture that has contributed to our success. I think we've got some room to run, but if I could be doing what I'm doing now just better in five years from now, that's success. Ten years from now, that's success.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Turned around the business and we're growing again. And they had also made some product introductions, which to this guy who grew up in Milwaukee, Wisconsin sounds revolting, but coconut latte was a huge hit. It was a scary stock. We knew a lot of people who had been burned in the prior iteration of it. And no one wanted to touch it. We bought a decent sized position when the stock was trading low double digits, high single digits. And we did a lot of the work I was describing a lot with the alternative data, some surveys. We spoke to franchisees in China about it. And you've sold a decent amount of the way up.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Position that I'm most proud of is luck and coffee. It's a Chinese coffee retailer, the aspiring Starbucks of China. And it was a very controversial stock. I guess it was 2019. It turned out that they had committed significant fraud. And the company had a restructuring. It was a Cayman Islands restructuring with a U.S. Chapter 15, where we think cleaned house. They recapitalized the company. We bought some of their securities, both equity and converts, at the later stage of the bankruptcy. And we did a ton of work on it. And we really thought they had cleaned up the business. And they not only cleaned up the business from a financial statement integrity perspective, but they had also gotten the business model to work. They had gotten their ASPs up. Their problem back then was they were just solving for growth. They weren't really solving for the four-wall economics of their stores. And they had shut a bunch of underperforming stores. They had really...”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Was all going on with an extremely volatile market. There was implied beta, as there should be inactivity because it was probabilistically going to be worth excellent Microsoft bought it, or it could be just a stock. And we did a bunch of option trades to manage our risk. I'm not going to say we got every zig and zag right. We didn't. We never do. The great thing about this business and the hardest thing about this business is a lot of folks who are in our industry, there are people who got 90s and plus on every single one of their tests. And investing 50s, 55s, 60s, pretty good. Now an arbitrage, that's not true. You have to be in the 90s on arbitrage. But still, this was a situation where we realized it was an extremely high beta situation. And I think overall we did fine, but we probably reduced too much when the CMA said they were going to block the deal. Every indication was that that appellate process was not a real appellate process.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Saw that the US regulators were over their skis legally. It's still not done, but we feel pretty good that it's going to get done. I think we did the right work. The decision came out. It was a little bit of a surprise, but we've managed to weather it.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Felt very confident that they would lose that challenge. We were not necessarily as concerned about the CMA. And the problem with the CMA is it's a little bit more of a black box. And we really had a rough time getting a sense of where they stood until they issued their policy paper. The work we did was really more about understanding who was on the panel, who were the decision makers, what was their worldview, were they populists, were they Brexiteers? Or were they folks who thought more like the Europeans? And I think the work we did led us to the conclusion that they were more of the European mindset. Obviously, we were wrong. And what was a pretty, I thought, surprising issue, which was the future of cloud-based gaming, I think in hindsight, we recognize now that there was more dialogue between the US and the UK than we had appreciated, and they were probably doing the US's bidding in a certain way, which is surprising, but then they really reverse course when the US lost. I think once they...”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Predictable and quite thoughtful regulator. So we felt pretty comfortable that the EU would do the right thing, but would approve the transaction. Maybe I should stop and say there are essentially two ways that companies can address a concern from regulators. They can do what's called a structural remedy, which is essentially to sell off part of the business or to hive off some of the business really sell in a way that satisfies the regulators that they won't be a competitive problem. And there are nuances around that, whether the buyer will be able to really compete. And then there are behavioral remedies where the company commits not to do certain things. And the European Union is very, very willing to accept behavioral remedies, partially because I think their enforcement mechanisms are a little bit more efficient. So if they see a problem, they can address it, whereas in the U.S. the enforcement mechanisms are a little slower. And every administration comes in pounding the table that they're not going to take behavioral remedies and eventually they ease up a little bit. We knew that there was a good chance they would challenge the transaction in the US, but we”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“I wish I had gotten 100% right. We originally were involved in Activision when Kodak had all of his problems because we felt that there was no way that he would last as the CEO. And we thought there were two ways that that would play out. One was that an activist would show up and the other was that the company would sell itself. We were fortunate that the latter happened. We were surprised where the spread traded. And as we dug into it, we felt pretty comfortable that the US didn't have a winnable claim. We certainly recognized the risk that the U.S. would try to challenge it. The chair of the FTC, Lena Khan, is very, very transparent in terms of her view of these transactions. So we thought the U.S. was the principal risk. Microsoft would say all the things that they needed to say we thought for the Europeans to approve the transaction. When I started doing merger arbitrage, the European Commission was a non-entity to American arbitrageurs. But since then, they've actually become a very”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'd love to walk me through an example, and the one that's coming into my head is the Activision Microsoft deal where you have U.S. regulatory of the UK and EU. How did you look at a situation like that and assess it as it went along the process?”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“And the role of foreign regulators Obviously, the various Chinese agencies that regulate transactions, they're a very big part of that. And obviously China is increasingly a black box. It's very hard to do due diligence there. In fact, they've arrested people for it. So those kinds of risks are the risks that I probably spend the most time on. We're in what appears to be a real paradigm shift in terms of the relationships between countries, the trend towards globalization has clearly slowed dramatically, if not backed up. Those risks matter a lot to the kind of strategies that we run.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are a lot. They're all the macroeconomic risks. And we try to not be particularly directional on that, but you have to respect that. It's one thing for the economy to slow, but when you have a real recession, everything goes wonky and you have to constantly monitor for that. As I said, we're not a macro fund. There are loads of people who do that. It's the same thing with oil or other commodity prices. I think at this stage, you have to acknowledge that climate risk is a big part of that and the disruptions from climate risk or real-time concern. Look at the tragic fires in Hawaii. We saw what happened in PG&E. Obviously, this has a pretty significant impact on PNC insurers and power generation and creates potentially some opportunities on energy transition from our own business. I would say the ones that we have to underwrite on a daily basis, a lot of it is regulatory and policy risk. When I spoke about merger arbitrage, I spoke mostly about the United States, but very few transactions are purely domestic anymore.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Participating in a transaction that Baush and Loma is doing. We think the rating is lower than it should be. It's rated B1 in part because they have this dynamic with their old parent valiant or what is now called Bausch. We think the pricing is really, really attractive on that.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Say right now we're really excited about bank debt. I don't know that the duration of this opportunity, but it's very, very attractive right now. Essentially, the bank debt market leverage loan market, I should say, has been really dominated by the CLOs. And that algorithm right now is broken. So CLO formation is harder now than it was before. There's less demand for the AAA tranches of CLOs. So we're seeing, paradoxically, is that actually the larger bank debt deals are harder to place and we're getting more concessions in that market. So we've been very active on the capital market side of the bank debt market. And compared to, say, friendly merger arbitrage, it just seems like a much, much more attractive opportunity. So we've been pretty excited. We've been dialing up our exposure to a decent amount.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“The pot shops in merger arbitrage are becoming a very, very important player. Some of them do some amount of event-driven equities, but I think it's much, much more constrained because of the market neutrality that they run. But I think the biggest impact where I would say is in merger arbitrage, and I think that part of the reason spreads are as tight as they are is because the pods really do have very, very dedicated effort to that. And they've done a very, very good job, but it makes it somewhat less interesting for us, at least with the safer-friendly deals. On the equity side, I think the pods have done just a terrific job in harvesting short-term alpha, calling the quarter and things like that. They're just very, very good at. I think where we can win is more in the intermediate term alpha and with the event dynamic. So that's where we try to spend our time. And I'm sure that they'll get better at what they do and we'll get better at what we do and we'll continue to duke it out. But they've done just a terrific job on the merger ARP side.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“To be. On the equity side, I think it's the opposite. It's a better competitive environment with maybe a somewhat more challenging opportunity set. But as I think we successfully adapted to that opportunity set, it's better to be in a less competitive environment.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Really has changed a lot for most of the time that I was investing before, say, the financial crisis, there were just a lot of really large shops that did merger arbitrage in the expansionary market and distress when there was a contraction and a little bit of equities to top that up. And that all changed. I think it really began to change after the financial crisis. And I think part of it was that we all maybe didn't appreciate how much we were dependent on the rate environment to create these opportunities because we were looking at alternative spread products off the run spreads. And as rates came down, but spreads compressed, so that entire opportunity set became much more anemic. So I think a lot of folks had to find new ways to apply their skills, and different firms had different levels of success with that. So what's happened is that that competitive environment has changed pretty dramatically. I would say on the credit side, the distress market is much, much more sophisticated. It's much larger than it used to be.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the compensation structure for the partners is based on the performance of the firm. In 2022, we became really interested in credit. We had a really good equity portfolio. We realized at that point in time, high yield was trading over a beta 40 or 50 percent to the S&P 500. We were going to have to take down some of our exposure to start dialing up our credit exposure. We had a conversation about it. There wasn't a single descent because everyone knew that what we were really trying to do was make money for the firm. And if we make money for the firm, we all participate in that.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Pretty much the entire team has pretty good experience across at least credit and equities of the five senior members of the team, three have been involved in merger arbitrage a decent amount as well. So we have a pretty good understanding of each of the themes that we invest in. And so that really helps, that facilitates it. And Bruce Haggerty, who I've worked with since I hired him in 2006 with a brief hiatus when I left Eaton Park and he stayed, he and I have been doing this for a long time together. Cliche, we finish each other's sentences and all that, but it really does work in terms of we're both really on top of everything that's going on. And Danny Youssef and Fennel Gadadra have both done a lot in equities and credit. So we have a pretty good zone defense, if you will, or zone offense if that's a term for how we look at the whole ecosystem.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Shorting, we buy things long against it for the same reason. It's much cleaner from a portfolio construction perspective. It's also much cleaner from judging the quality of the position and the alpha generation of the position.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Part of what we do when we underwrite a long is how we're going to hedge it. And we hedge at each position level and we ideally will find individual securities that we want to short against it. If not, we'll use a custom basket or an ETF or if all else fails, a market hedge. And the idea of that, one is we want to underwrite our lungs in terms of their alpha opportunity, not just we like it. It's a cheap stock. We think it's going to go up. And then also from a portfolio construction perspective, that keeps you pretty balanced. When you roll that all up, you can look at the portfolio. And if you're doing it right, you shouldn't have to make a lot of adjustments in terms of your overall exposures in the portfolio. We do look for factor tilts. And if we think how we got more or less beta to the market than we wanted. But ultimately, what we're really trying to do is make sure that the hedging of the portfolio is done at the position level. We do alpha shorting. And when we do alpha.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“What we try to do is run a concentrated best ideas portfolio, all the investment partners meet every day for anywhere from half an hour to an hour and a half. And we go through what's in the pipeline and what people are working on, what are the best opportunities we see. Do we think that we should be taking up positions or down positions? And we cross-referen between the various themes. And because we all know the portfolio so well and we go through this exercise so regularly, it's a pretty efficient way of making sure that we're getting the money to the best ideas and dynamically adjusting them as market conditions change and as new situations arise.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Typically an LBO, and the private equity firms don't want public filings, but they can't just raise bank debt, so they raise bonds and they use this SEC rule that was for sophisticated investors who can look at these bonds. But as a result of that, the financial statements aren't generally available. You have to go to the company and sign up to get them. And so that market is a little bit more opaque. It's certainly less efficient than the equities market or even the investment grade market where folks can download that data and put it on their platform in a nanosecond. We think it's just a much more interesting area to play.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Involved in the high yield market. We particularly liked 144A securities that were rated CCC. A lot of that is the rating agencies just look at the leverage statistics and tell you what the rating is. But when you go in and really examine these businesses, and remember, because they're 144 a securities, you actually have to sign up to get that information. What you see is that there are some very, very high quality businesses there. Not all of them are businesses that should trade at eight times eBan or levered at seven times. Some of these are 15 times EBITDA businesses that are leveraged six or seven times. They're not high CapEx. They're very free cash flow generative. And they have a self-help story. When you walk through...”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Has kept us away. I think there's some amount of adverse selection in distress until the last year or two just because there's so much liquidity. There are very few good businesses with bad balance sheets going into bankruptcy. Now, I'll say this. There are some folks who have done a spectacular job in distress, and I have enormous respect for what they've been able to do. We tend to be more neutral in terms of cyclicality unless it slaps us across the face. We run pretty low beta. But what we've seen in the last year, I would say, is credit spreads really widened out a lot as rates went up. Part of that was fear of the economy. Part of that was that a lot of folks who were stretching along the risk curve because rates were so low now feel more comfortable in cash. So we've now seen much more opportunity and we've gotten much more involved in both high yield and bank debt. I should say, by the way, that we have from time to time been opportunistically involved in distress, which we bought in distress form as the bankruptcy was coming out. Last year, we got very...”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“We have always been very focused on the stressed and distressed credit world. I would say that we were not big players in that market over the course of most of our lifespan of Governor's Lane, partially because we thought rates were just too low and spreads were too tight. We were involved periodically in some of these situations. And one of the things I think about this stress market that was pretty sobering for us was this creditor on credit violence that you're seeing now. It used to be that if you were in the same class of creditors, generally you thought that you were going to coordinate together to maximize the outcome for the credit group. That changed. I don't know whether it was because of a dearth of opportunities and distress or whether it's because the sponsors became more willing to play off one credit against each other in some situations such as PCG. It was just such a big opportunity and it became quite a food fight. I'm optimistic that that will get somewhat less violence if we see a real distress cycle, but the positive distress opportunity.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we certainly look at a lot of the things that drive the old opportunity set, which is activist situations, spinoffs, companies that have gotten themselves into some problem, some legal or regulatory disruption that has changed things. We're always looking for things where corporates are trying to do something to make their business better or are facing something that's made it a lot worse. And then the nice thing is you get to pull on threads from that. And sometimes that's where things get really interesting. We were involved in a semiconductor company where there was a subject from an activist campaign, and that really gave us a lot of other opportunities to look at other things. How about the...”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“That it really is a very, very powerful tool. And we find that when we apply it in situations like that, it's not the same competitive environment as we've seen in the long short world.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Has incentives to sandbag numbers, whatever the old tricks of the trade in terms of entriven investing, you also have to recognize the fact even if the event dynamics are good, there's going to be a fundamental controversy. There's a reason why the market is pricing things the way they are. So you have to lean into the fundamental side just as deeply as you have to on the event-driven side. And we've dialed up our sector specialization. We've dialed up our training on modeling and all those things. But we've really leaned into alternative data too, because alternative data is a really, really powerful tool. And obviously, in the large cap world, it is table stakes. And there's loads of stuff that's published. What we find on the Aventri Inside is that if you start doing bespoke work around situations that aren't going to be obvious to the off-the-shelf providers, we can generate real opportunities, whether it's creating our own custom index from web scrapes of travel nurse day rates so that we could figure out what some hospital margins are going to be, market by market or things like that.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is so great that if you fall behind, it's very, very hard to catch up. So if you have a thermostat business sitting within Honeywell for years and years and it's just not as interesting as avionics, it's Honeywell's equivalent of equities in Dallas, that business is not getting the attention that it needs while Amazon and Google are all about the Internet of Things and they're coming up with these really cool products. So you spin that out. It's not just that they need capital and attention. They have to retool themselves as a tech company. And that's a real challenge. So we look now at a lot of these spins and it's not just that they were underinvested in the redheaded stepchild or whatever term you want to use. These are businesses that have fallen seriously behind and maybe terminally behind. So appreciating that change in the underlying economic environment, I think, is an important part. The second thing is to understand that even if you have all the event dynamics that you like, you have a high quality activist, you have a management that has”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“The operational activism, which is much, much more complex to underwrite. We really began to see this in 2017 and 2018, and we were somewhat puzzled by it. There are a couple things I would observe. One is the market structure has changed. So there are fewer alpha donors than there used to be. And the price setters are just better and better at this. So you've got to up your game. The second thing, and I think this is an important one in terms of changes in the underlying economy, a lot of these event-driven equity strategies often were essentially paths into a corporate restructuring, a turnaround of a business. And one of the things that's happened over the years is that turnarounds have become more difficult because technology and the disruption from technology”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's changed a lot over the years. It used to be that there was a list, there were spin-offs, there were post-Vorg equities, and they were generally pretty reliable sources of long alpha. They were, for some of the reasons I was talking about earlier, you have this dynamic, particularly with a spin-off, where a large cap company spins off a small cap company, the long-only manager is not in the business of owning that, and they reflexively sell it. That opportunity set is no longer as reliable source of alpha. It's actually still a very, very reliable source of dispersion, but there are good shorts along with the good longs. That's true of activism as well. Activism used to be much, much more simple because you had an active market for corporate control. Companies could borrow a ton of money and lever up their balance sheet. The activist thesis was a little bit easier to understand as those targets became fewer and far between. And also we began to see the debt markets become less forgiving. You see a lot more.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Markets question Where is it going to price if the deal breaks? And that kind of capital markets analysis is something that we've been doing for a very, very long time.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“We look at each merger on its own, but we also recognize that there's more correlation between them. Take, for example, there were two mergers. You had Horizon Therapeutics, and then you had Seattle Genetics, totally different deals, but almost the exact same set of issues in terms of is the FTC going to decide that there's some issue that they're going to try to tie drugs to each other and take price on that. So we have to see those as similar risks. This was true in 2009 when Pfizer was buying Wyeth and Merck was buying sharing plow. Both were trading it really, really attractive spreads, but you had to say, look, they're both pharma deals. If there's going to be an issue, there could be an issue with both. So there's only so much that you can do of both of them. The answer was you should have done as much as you could. Now you really have to spend a lot more time on assessing what the implied probability is, what's the real downside in this situation. And that's not necessarily where we happy to own it. It's more of a capital.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“A lot harder. It starts with we do our own analysis of market shares if it's a vertical merger. We try to come up with every theory of harm. We hire lawyers, but a lot of it is the old leather shoe going to the trial, watching trials on Zoom now when you can do that, talking to people in the ecosystem and getting a sense of just what the regulators are saying, whether it's at public speeches and things like that. But I will say every time the FTC announces a closed meeting, we choke up because we're just worried what is it that they're going to do now. But it's not that different than the process we've always used in regulatory complex situations. It's just that there are so many more of them and the things that can cause complications are just different.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm pretty optimistic that once the corporates get the message that it's safer to go into the water, they'll do so. Last year, a responsible antitrust advisor would tell a corporate board, I think I can get this deal done, but it's going to be a year and a half and there's a high chance of litigation. Very few boards are going to sign up for that. Whereas now I think it's pretty clear that the administration is beginning to back down from that approach, although we don't know this, particularly at the FTC, we have a very, very passionate opponent of these transactions.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Speaking, the administration has not been successful in those challenges. So those situations have had very, very attractive spreads and return profiles, but with real shock risk and much more volatility than you typically want in a merger arbitrage strategy. So that's one side of the equation. The other side is that transactions that are perceived to be safe are trading at very, very tight spreads. I don't know whether Merger Arbs didn't get the memo that rates were up. But at one point, I think they were trading 290 over the riskless rate. Now, with Bank Debt at 500 or 600 over, it's just hard to understand why that's going on. So I would say that we've been very focused on the more regulatory complex mergers, but you just can't be as big in those. But the rest of the strategy, I think, right now is not that interesting. I'm actually pretty optimistic now that the administration seems to be pivoting away from some of these more extreme positions. They basically folded on Activision, they folded on Horizon.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“2023 is a very, very weird year for arbitrage because we are in a pretty bifurcated market. The rate shock of 2022 has really reduced the number of transactions, and that has been compounded by a regulatory shock that has come largely in the United States, at least from the Biden administration. The Biden administration has taken a much, much more aggressive tack towards merger control, particularly with respect to so-called vertical mergers, not competitors, but people who are in similar industries. My perhaps overly optimistic read at the time was that they'll do that. They'll lose a couple cases and they'll go back to doing what they used to do before. But they've actually been much, much more persistent. And I think that leaving aside the wisdom of that strategy, the legality of that strategy, it's been very effective in chilling large cap mergers. So what we see right now is that there have been a few mergers that were announced in 2022 that have gone through very, very tortured regulatory processes, but have actually generally”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Year I've ever seen an arbitrage. And then that all came to a screeching halt when the internet bubble collapsed. But for me, it was actually a great thing because it forced me to recognize the fact that you can't be a one-trick pony from a career perspective in this industry and you really have to diversify your options. And if I had just stuck with merger arbitrage, I would have had a lot of fallow years.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a very, very different environment. When I started in 1999, we were at the really fun part of the first internet bubble. And that triggered a massive, massive consolidation. And there was just a tremendous amount of consolidation. And we were doing that in the period of, I would say, close to peak Chicago school antitrust policy, at least in the United States. You had very, very accommodative regulatory policy. And you had a booming bull market where if you said to a long-only investor that you can get a 15 or 20% return on a merger arms for they said, well, I can get much more than that in Cisco. So it was a really, really attractive environment. It was almost too easy. I would come in every Monday morning and they'd offer me a new menu of specials and you'd say, I'll take this one, this one, and this one. And I got a lot of risk on. And what was nice was pretty much every industry was consolidating in 1999. But it was a much easier environment. I think what had happened was in 1998 there were a lot of catastrophic merger breaks. A lot of folks had left the strategy. So the imbalance between the capital demand for the arbitrage services and the actual amount of arbitrage capital was out of whack. So 1999 was maybe the most gold.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things I've always looked for is people who have restructuring experiences because I think restructuring experience is really where you get the combination of equity underwriting and understanding the role of legal processes and group dynamics in terms of resolving complex situations.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“I wanted really good athletes who potentially could invest across all strategies. There's a lot of similarities between them. I would say the one that is a little bit different is the merger arbitrage part of the strategy because the work cadence there is very different than the other two strategies. A typical equities investor, a typical credit investor can look at his or her calendar on a Sunday night and have a pretty good idea of what they're doing for the rest of the week. Who's reporting that week? what are the conferences and things like that a merger arbitrage investor is preying on sunday that he's going to find out there's a lot of stuff to do on monday from an operational perspective i always thought it's really important to have a dedicated merger arbitrage person but what i really wanted were people that could understand event-driven dynamics across asset classes people who can understand the role of balance sheet who can understand the role of the fundamentals that fundamentals really matter and i think we've learned a lot more about that in the last few years”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“What I really want to do was recreate the micro team that I had at Eton Park in a standalone vehicle engaging in the same strategies and to do it in an environment that would be maybe a little bit less corporate but still quite institutional. The three strategies, we call them themes, the three themes we invest in are of entry inequities, merger-related investing, and event-driven credit.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“So when you set out to launch Governor's Lane, there are a few things that you mention that seem like they're important in terms of how the culture should work and strategies you wanted to pursue. What did you set out to do?”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source
“Me at any time in my career beforehand, I would have said me running a hedge fund that's preposterous. I was a nerdy kid who liked history and law, but I found this passion and I really wanted to do it in a format that I could do it. I also felt like I had achieved enough financial stability that I was in a position where I really wanted to manage my own money. And so it seemed like a great opportunity. So I spoke to Eric in mid-2013 and I agreed to stay till the end of the year and then I taught for a year at Harvard Law School and then I launched Governor's Line.”
2023-10-16 · Capital Allocators · Isaac Corre – Event-Driven Investing at Governors Lane (EP.344) · IDENTIFIED FROM THE TRANSCRIPT · source