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Josh Friedman

lines on the record: 81
first: 2022-07-25
most recent: 2022-07-25
sittings or episodes: 1
sources: podcast

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“Yeah, that's a very good question. You have to reward people for not investing as well as for investing because there's a time when their areas are not particularly attractive and you don't want to push people to invest, so you want them to own a piece of the overall firm carry, if you will, as opposed to just their own so that they're not hoarding assets at a time when their area is not interesting and they're just taking risk because they have upside and not downsides. We're very careful about what the incentive schemes are. And generally speaking, people at the senior level are paid by how the firm does, not how they individually do, although we make provisions so that we can recognize unusual contributions. But it's a challenge. And right when you think there's going to be no opportunities, all of a sudden they show up. We've just lived through a decade of declining interest rates where yield got lower and lower and lower on almost every instrument. So the yields were dropping. You weren't getting rewarded for becoming a more junior lender because you were only getting paid a tiny amount of incremental yield for going deeper in the capital.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“They have such an outstanding track record is that they communicate extensively with and get the credits that they recommend approved by the broader credit team. So they have access to the same pool that the hedge fund analysts have access to. That's evolving, but we've organized it generally in most cases by industry, but where we need specialists for something specific like trading the CLO portfolios or trading structured products, we'll have that be separate. The trend now within our firm is to have a little more separation. So we have some people who are very focused on origination of loans. We have other people very focused on deep distressed. They'll access the industry expertise of others, but we're evolving toward more separation by the nature of the fund and the nature of the function, as opposed to the same type of pure industry focus that we had in the past.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are two broad ways to do these things. One is you arrange them by product, so you have a separate distress team, a separate high yield team, a separate team to do real estate. And the other way is you arrange them by subject. So you have people in different industry groups. One person covers retail, one person covers industrial energy, whatever. We've generally started out with the idea that we would have a common pool of analysts specialized by industries. That's different when you get to particularly highly specialized types of securities, like say securitized products, whether that's RMBS or CMBS or student loans or consumer loans or car loans, anything that's put in a structured, securitized package is usually quite specialized. So we have separate professionals work on that from the ones who work on other things. CLOs are a particularly specialized type of product. So we have a dedicated CLO team, but the dedicated CLO team, one of the reasons why I think”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“We opened an office in Tokyo because we do a lot of business with Japanese investors and a few other offices as well. We have a research office in Hong Kong. We have an investor office in Shanghai. It's difficult because when you buy mostly credit-oriented securities, predictability of rule of law and of the way in which restructurings are handled when there's an overleveraged credit, those are critical elements of being able to be a successful investor. That doesn't work equally well in all countries. And evolving institutions that create that predictability can take decades. Very different picture in Asia where those things are evolving now very actively from, say, England, where that's quite well developed, quite different from the US, by the way, but at least well developed and relatively predictable.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“We had a heavy component of personnel who were oriented around transparency and compliance and communication. It started out with a few of us in a little room at somebody's law firm and then it grew and grew and grew. And now we have about 220, 230 people. And the investment staff is probably 65 or 70 and the rest are all sorts of very important functionality that supports that. And they're very important. You have to do those at the highest levels. But we also expanded geographically. We opened an office in New York a very long time ago. That was essential just because we're in New York constantly. The street is in New York. A lot of our colleagues and competitors and friends and so forth have a presence here, so it's very important for us to have enough touch points in New York. We open an office in London early two thousand, maybe two thousand four, five, six, something like that. And we've had a continuing presence there. That's very important because we do a lot of stressed and distressed trading out of Europe in general and London is the gateway for that.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've always had a fairly people intensive approach to life. We were one of the very first firms of our sort to register with the SEC. We chose to do that because we thought it would project a certain level of transparency and compliance that would serve our business.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of the world, and I think did a pretty good job at that and figured out enough varieties of strategy within credit-oriented and arbitrage-oriented strategies to avoid things that were more global macro in nature. So that was a pretty big wake-up call for us. We also over time have realized that you have to be a business person and you have to create products not only that you're good at, but also that do fit the needs of clients. And we're probably better at that today than we used to be. So we've parsed out half a dozen different lines of business from one business. So our CLO business is separate. Our direct lending business is now a separate business. Our hedge fund business is still there. We have high yield and bank debt managed accounts. That's a separate business. Our real estate businesses are separate. So we've created these different pods eventually, but later than some, and that has kept our growth at a lower level than maybe it otherwise would have been, which isn't a bad thing necessarily because we're trying to occupy a space.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“We got interested in sovereign debt at one time, something we flirted with and then got out of. First, the Asian crisis came in 97 or so, and we did a great job at completely avoiding that. And we did a good job on the corporate debt that we were buying and the value equities and other things. So we sailed through that very well. Then, of course, the Russia crisis happened and we got killed on the Russian paper. We basically swore off things where we couldn't really handicap the odds better than the marketplace could, or even if we thought we could. It's a lot easier to do that in corporate settings where you understand the rules of play than it is in sovereign settings. That was an interesting bit of trauma. I remember we had hit a billion dollars in assets and we dropped back down to 500 and something. One of our young associates who had just joined us was looking at our pitch materials. She said, it says you have over $500 million. I thought it was a billion dollars. It was. We tried to repot ourselves in the lower volatility part.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“Fully about building a business as we did about the underlying investments. We were a little better artists than we were business people. And that doesn't always work.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“I remember when our good friends Bruce Carson, Howard Marks, left Trust Company in the West to start Oak Tree and almost instantly had more capital than we did, or at least as much, and we had started a few years earlier. And part of it was that they understood the capital allocation models that institutions had. And they had a box for convert ARB, a box for risk ARB, a box for real estate, a box for high yield, a box for distressed, a box for stressed, a box for long short equity, a box for global macro. They didn't create products for every box, but they created products that were oriented toward boxes, and then they went to capital allocators. We said, let's do something that we would put our own money in and field of dreams if we build it, they will come. Well, that's not really true. And then all of a sudden, like mana from heaven, down came a category called multi-strategy, and we were deemed to be multi-strategy even though we were credit oriented. And that became popular for a while. That fueled a lot of growth. We didn't think as thoughtful.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“So at some point down the road from then, that box may have eventually been called event driven hedge fund or something like that. What you just described is the furthest thing you could imagine in, say, the early 90s from an elevator pitch. So I'm curious, how did you get from those initial $18 million to something that was a business when there probably wasn't a box around for someone to fit you into”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sellers than buyers, and where we felt like sometime in the relatively foreseeable future, things will simplify and then traditional buyers will be there.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“valuation growthy stuff where you really didn't know what it was. It was mostly value orientation. It was usually something that was complicated and disliked because some change had happened and it was being rejected by the world at large, or it was complicated and new issue oriented but didn't fit into the normal boxes in the capital markets. Those were the common themes complicated, very susceptible to high-level analysis, generally credit-oriented, generally value-oriented, and usually had some defined exit. So what was complicated today was going to be simple in the future because the bankruptcy process has run its course or because the buyer was going to divest of things and then be a nice pure place, simple company, or whatever. But generally speaking, complex things that require real roll up your sleeves type work where many other people, particularly traditional high-yield players, mutual funds, and so forth, were not that likely to play and were more likely to play.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“We were trying to do something different from conventional capital markets investing. So we were trying to buy things that were complicated that would eventually become simpler. And generally, though not always, do things that were driven by credit markets. So distressed is an example of a perfect asset class that would fit in our type of operation that wouldn't fit with a lot of the conventional players in the market. Although by 1994 and 2005, distress had largely run its course, at least for a while. We were doing arbitrage from convertible arbitrage to risk arbitrage to other types of arbitrage. We would do stressed total return debt. We would make direct loans to people who were in a complicated fix and needed money quickly. And if we couldn't have enough capital ourselves to provide that entire tranche that we were pricing, we'd share it with a few friends. And we did that many, many times back in the old days. What characterizes everything that we did? Generally, we did value-oriented situations. This wasn't incomprehensible.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“Made sure that at all times we were going to be completely transparent and we're going to work hard and be good credit analysts. And if you do those things right, eventually good things happen. So eventually we pieced it together.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“After a lot of banging on doors, not really knowing what we were doing, we managed to get three large private accounts to give us single client managed accounts. One was a sleeve a hedge fund gave us, one was from a foreign bank, and one was from a U.S. insurance company. Again, it was like shooting fish in a barrel at that moment in time in the market because all the prices were artificially depressed by the S&L crisis and by Drexel's bankruptcy. The economy was turning straight up. And we were pretty good at doing the credit analysis. Those accounts did fantastically. Then we sat back and said, well, we have to give this money back because their limited duration accounts. We need to start a fund. So we started a hedge fund and half of it was our own money initially. I think we had $18 million at the first close. Then over time, we figured out how to access institutions. We were nothing if not persistent. We were super persistent. We called all sorts of people. We had no idea the right way to do it.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“We had a lot of clients where clients, particularly of mine from the financing side, people I had worked with, private equity firms. But we quickly realized we needed to find some capital. We didn't really know much about how to set up a hedge fund or a mutual fund or what the right format was, but we knew that the hedge fund structure was much better than a”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“First of all, we had no idea even how to raise money. Like, who do you go to to raise money? All we knew is that the market was at complete disaster. Drexel was out of business. The savings and loan business was in free fall because of all the real estate bad lending that had been done, so the Resolution Trust had taken over thrift after thrift after thrift, and the federal government was proud owner of a lot of high yield bonds, as were insurance companies, and there's no market. So if you sell when there's no market, because Drexel's gone, and the next biggest guy is a tiny fraction of that, and they don't know the credits particularly well, the prices get absurdly low on pretty good credits. And it's also a time when the US economy was recovering from a recession in the late 80s, so you had an economy pointed up and bond prices going down, and it made no sense. Here was this opportunity to buy things, and we had no idea how to do that. We started out by doing advisory work on bankruptcies. That was good because it paid monthly fees and success fees, and it was sort of M&A related in the end.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“A few others decided we were going to try to do something on our own. Ill planned, ill designed. We knew how to analyze securities. We didn't know much about how to run a business, how to hire people, how to retain people, how to build a culture. We knew what we stood for. So that was good, those values that we have organizationally, liking intellectually challenging, complex situations, and figuring out how to make money in those. That was all good, but we didn't know how to raise money. We didn't know how to deal with all of the things that you have to deal with in starting a business. And we also weren't in New York. So we probably didn't have a lot of the enabling infrastructure around us that we might have had had we been in New York. On the other hand, maybe it let us grow something out of the universe of the mainstream a little quicker as well.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was a tremendous shame and in my opinion was really entirely unnecessary. We all know the history. I don't have to relive what's in the public records, but certainly when Drexel made its missteps, there was no one there to rescue them. Not even close, quite the opposite. It was a shame, but we could see that writing on the wall two or three years before it actually failed. But the first three years that I was there from 1984 to 1987 were a period of exponential growth, exponential creativity, explosion in the size of the market that we were creating and the characteristics of it, and explosion in the private equity market because we empowered huge growth in that business. Once we started to be able to see the cracks, it was pretty clear it was time to start thinking about what to do next. And Drexel stayed on the right path and not made the mistakes that it made. I'm not sure that I would have left so quickly. We were having a lot of fun. We were all getting paid for it. It was so intellectually engaging and rewarding. When it did go away, myself and Mitch and”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“So you were eventually going to go on your path to launching your own business anyway. Before you got there, Drexel went down, and I'm curious from being inside a place like that where there was a line crossed, what that trajectory was like to creating and owning a marketplace and then seeing something potentially go too far.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“Mike was very inspirational and positive thinking, that personality really pervaded the organization. The culture was don't be afraid to be inventive, figure out how to get to yes, don't figure out how to get to know. Peter Ackerman, the guy I worked for, one of the very senior partners at Drexel, was unbelievably creative at breaking logjams in every major transaction that we were doing and figuring out a way to get deals done. So it was a very positive get things done culture. It was a creative culture where you were encouraged to design new securities and to just figure it out. We were all young. We didn't know what we were doing, but no one else did either, so we were free to figure it out. And Mike was an extremely empowering boss to all of us in that department and to all of us at the firm.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“Trying to do with the company you were trying to buy. This caused an explosion in the private equity world, and being a partner on the capital markets desk working with the guy named Peter Ackerman and with Mike, Peter was more the client side, the issuer side, and Mike was, of course, more the sales and trading side, but we were part of the sales and trading high yield bond department, and I was very young at the time of my twenties. That was exposure to something that was groundbreaking financial technology and change. It was terrific and it was exciting, but I was still one step away from being a principal myself.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of all of these firms because they seem like they'd be much more interesting to work at than to simply be an agent in the middle of transactions. And here one of them came knocking at my door. Mike was carving completely new paths in the financial world. There was no such thing as a new issue high yield bond before Mike and Drexel, the only high yield bonds were fallen angels, investment grade bonds that had been downgraded. So to create a new issue high yield box that could be quickly brought to market and closed was like weaponizing the private equity industry. So all of a sudden you went from having a couple of boutique private equity firms that prior to that moment had to go to teachers and equitable and northwest mutual to try to negotiate covenants and spend months and months doing it and then negotiate with a bank and then try to get the documents to all fit together. All of a sudden you could run around see a whole bunch of investors and take this new technology and raise money really quickly and in a way that was a lot more custom tailored to what you were trying to do.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“Was really my dad's voice whispering in the back of my mind. My dad had always said, You have to have your own business. You have to be an entrepreneur. And I wasn't brought up in New York. I was brought up in Boston. My dad certainly didn't know what Wall Street was or know anything about that whole career path. And because I was enough of an outsider, I probably didn't ascribe sufficient value to this extraordinary position I had at this extraordinary firm. Maybe that was a good thing in the end, but I didn't. I really wanted to be an entrepreneur. And when I got the call from Mike, here was this entrepreneur who the senior people at Goldman Sachs, by and large, hadn't heard of him at the time. This was a brand new thing. I knew all about Mike because I was keeping track of all the financial bootstrap people, the guys doing what they called leverage buyouts back then, the early buyout firms of which they were very few, the people who were acting more as principal, as merchant bankers as opposed to investment bankers. One of my friends and I were keeping track.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“I was very fortunate that I was in such an intellectually engaging, fun, creative place. And Goldman just had a lot of smart people who were really nice, so it was terrific. And the leaders of the firm at that time, John Whitehead and John Weinberg, were unique. They were long-term thinkers. They were extraordinarily client-friendly and put their clients' interests, I think, above their own. They were really extraordinary people. And I had the pleasure of working closely with both of them from time to time, even as a young associate.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“People like Steve Friedman, who ran that group and later on went to run Goldman, thanks to Bob Greenhill at Morgan Stanley, thanks to people like Bruce Washerstein at First Boston, and thanks to people like Felix Rowaten and others at Lazard. That business was just growing at an extraordinary clip. And I was part of this group where I was a young guy watching people really write the book on how to do hostile raids and raid defense and all this interesting stuff.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“Fall were legendary talent consortiums. Would love to get a sense of what that was like. Both firms were unbelievable magnets for talent and they were also incredible at producing a diaspora of alumni who went out and did entrepreneurial things. At Goldman when I was there, they didn't have the history of people leaving. I was one of the first people who was on a great path who actually left. So that was a little bit of a jarring change at the time from convention at Goldman Sachs. Later on, of course, they went to spawn all sorts of interesting buy-side businesses in private equity and debt. Every manner of financial service and principal activity in the capital markets. But Goldman was a green beret full of talented, smart, creative people. I was in one of the most interesting places in the M&A department because that was a business that was just exploding thanks to”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“The world got waylaid because I got recruited by Goldman Sachs. I spent a couple of years in the early 1980s in the merger and acquisition department at Goldman Sachs in New York. From there, I was recruited to Drexel. My business school roommate and law school roommate, Mitch Julis, had also been recruited to Drexel. This was an interesting and entrepreneurial thing. It fit my dad's instructions to go out and be entrepreneurial and don't follow conventional routes and so forth. It didn't fit my original dream of being a tech entrepreneur and being on the left side of the balance sheet. So I went out and I worked in the magical world of Mike Milken in 1984 to 1990, which was just an unbelievable place. It was a great place to learn how to buy a business if you didn't have any money because we were financing people buying businesses who didn't have that much money. I always wanted to be on the buy side. I didn't want to be an agent. I really wanted to be a principle of some sort. That was the initial trajectory. Both Goldman and Drexel before its”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“Caltech, among many others. Please enjoy my conversation with Josh Friedman. Josh, thanks so much for doing this. Thank you very much for having me. Well, let's go all the way back and start with your original path into investing. It was sort of an accident. And it wasn't at all what I planned to do. I was sort of a science nerd. I was a lot better at adding and subtracting than I was at writing essays. So I majored in physics and I thought I would become an executive at some kind of a startup or one of the tech firms outside of Boston on Route 128. I was from that area and there were all sorts of interesting tech startups in that era. This was the 1970s, 1980s boom of electronics. That's what I studied. Then I got a scholarship and I went to England for a couple years and studied politics and economics. Went to law school and business school, which was something my father insisted that I did because he had a cousin who did that and he was the only successful one in the family. So my dad said, you have to do that too. I had no intention of being a lawyer. But along the way, my plan to be in the tech.”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source
“Guest on today's show is Josh Friedman, the co founder and co-CEO of Canyon Partners, a $25 billion multi-strategy firm that specializes in credit-related analysis across distress securities, securitizations, risk arbitrage, and real estate. Josh founded Canon in 1990 with Mitch Julis, his roommate from their time at Harvard Law School and Harvard Business School. Our conversation covers Josh's background at Goldman Sachs and Drexel Burnham under Michael Milken, the founding of Canyon, its investment philosophy, key stages on its path, and structure of the organization. We then turn to Josh's thoughts on the evolution of credit markets, liquidity, competitive dynamics among creditors, opportunities, and risks. We close with Josh's advice for investment committees based on experience as a trustee at Harvard Management, Los Angeles County Museum of Art, and”
2022-07-25 · Capital Allocators · Josh Friedman – Master Class in Credit Investing at Canyon (Capital Allocators, EP.263) · IDENTIFIED FROM THE TRANSCRIPT · source