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Kieran Goodwin

lines on the record: 75
first: 2023-05-30
most recent: 2023-05-30
sittings or episodes: 1
sources: podcast

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“As I could be at that time, we had a great team. And yeah, I was a kingshire at the time and friend Biondi, who taught me a ton about distress investing, credit investing. We had like two circles. I had this kind of derivative optionality, new product background. He had deep value, the intersection, when those two circles kind of intersected, that sliver, we felt like we had a big advantage that we were seeing the markets from two different angles that most people weren't. That's the period that 0607 period when the world of subprime was blowing up and commercial real estate was blowing up and all these LBOs were like, how are you going to fund these LBOs? And we were really, really sure that they were going to get hung. We were super confident on our view.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“97 to 02, super volatile time. Really high volatility in the equity markets, but also in the credit markets, really, really high volatility, which is one of the reasons like convert hedge funds did so well. They had amazingly high equity volatility that they were hedging against and then credit spreads were wide. They had like kind of the best of both worlds. So then I traded pop for a couple years. When I was trading prop, because I'd started in the credit derivative market, like I almost knew every trade that was happening. I kind of knew why every trade was happening. Starting in a market and seeing it grow up, getting a sense of like knowing what every market move, every price that happened, you get like a sense of calm almost. Nothing surprising. And understanding the origin. So going into 2008, it was way worse than I ever thought it was going to be. I felt that I was as good.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, clearly. I had a massive advantage, which right time, right place, you catch the right wave. I'm a big believer that it's more important to be on the right wave than necessarily be the best surfer. The wave is more important. And I started in credit derivatives in 1995 almost by default. I was trading interest trade options and moved firms. We have a seed for you. It's credit derivatives. So that means for the first three years, I just talked to myself. I mean, I had credit derivatives trade around my car, business card. No one knew what it was. No one would give me the time of day. It was good to think about the markets and optionality and credit markets and how this product would potentially fit in and the use case for it. So then the market picked up as soon as the Asian crisis happened and then long-term capital and Russia. And then you had Y2K and the tech meltdown. And obviously 9-11, Enron, WorldCom.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Going to get blown up, and you're going to have a shakeout. We hear about all the time with respect to institutional allocators. They have a denominator effect. They've put out more money in drawdown vehicles, whether it's private equity, private credit, real estate, or venture. They were getting capital back to them so quickly on wins. They're like, all right, let's make a bigger allocation. And now their capital is not only do they put out more than they think they're going to have, but it's getting drawn quicker. And now there's going to be a pullback like, wait, let's look at how we did in venture. And actually, most of our money was made with one out of our 15 managers. I think there's going to be a natural consolidation.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, again, much like private credit, it was a cottage. I mean, there were some big players, A16Z and Sequoia and a bunch of others, massive established players, but there are a lot of small firms in Venture at the time of the financial crisis that have a ton of growth. And then there's been so many two people starting a firm with $50, $100 million. There's just hundreds and hundreds of those kind of firms. I'd say the barrier to entry as far as alternative asset managers, the lowest has been inventure. You just don't need the SEC registration and prime brokerage and the bank relationships. And it's much easier to set up two people, you and I, let's do a fund. We raised $13 million. Really hard to do in private equity. No one cares in private credit. Hedge funds, the fixed costs, you used to be able to do it. Now you can't really do it. So I think the smaller managers are”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“When the market really needs capital, which I'm not one to think about, you always see your like these funding cliffs like, oh, so much commercial real estate, all this is due. And like, I've heard this always, highlight in market next year, there's so much due. Like, there's always a lot of maturities due. If you get a market where all of a sudden there's a pause a bit, there's a decent amount of dry powder in private credit as well. Pricing can't really change that much. It sulfur is at 5% and leverage is probably down from normal middle market company would be 12 times EBITDA. They're lending at seven. Maybe they're lending five and a half turns now, but it's still so for plus six percent. Again, there's limits on how much interest you can't pay 15%. It just doesn't work for almost any company. If you can pay 15%, you don't need debt, in a sense. You're a good enough business that you should just raise equity.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, yeah, thousands of managers. I just don't think the talent is evenly distributed, and there's going to be, I'm not saying who it is, but like it's going to be some funds that just go away, just like we'll see in Venture, just like we'll see in middle market private equity. But that process of them getting blown out might cause a hiccup for a bit in the market in general. Institutional allocators are like, wait, I'm not always going to get 9% back. I could get 70 cents on the dollar back. It's not going to be zeros like you could inventure. You could literally give your money and get back nothing in a venture fund. But it's going to be super disappointing, potentially super disappointing on the margin, which I think will pause. And then the bigger firms that have more resources and probably deeper relationships are going to see like this cleanup trade is a pretty fat pitch. And we should lean in.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I mean, let's just say in the law of large numbers, the amount of growth that we've had in the asset class has been astounding. It's gone from $250 billion in 2010 to $1.4 trillion. If I take a step back, I think the asset class will keep growing. If I have to handicap it, I think there's going to be a consolidation and it's going to be a shakeout. And probably the bigger players benefit from that shakeout like we've seen in every other alternative asset class in a sense.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Ago, when you're thinking about the explosion of middle market private equity, I mean, absolute explosion in the last 15 years, there's got to be some of that. A 90? I shot a 90. Was it a hard 90 or a soft 90? Like it's a big difference. I'll just give me a triple there kind of thing. Hard numbers and soft numbers are much different. And I feel like in the world of EBITDA, there is this notion of hard and soft. And in a good market, soft is okay. But in a tougher market, everyone wants hard numbers.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Fraud happened. So I got crushed. It's good to know what's going to kill you, and it kills you, it still hurts. Even if you've got to understand that. What was the fraud of WorldCom? Really, at the end of the day, Bernie Evers went to jail. The fraud was WorldCom was capitalizing operating expenses. We had this early 2000s fiber. Everything's getting put in the ground. Massive growth still, even though there was a consolidation, like the level threes and the global crossings went down. WorldCom and AT&T were still growing. And AT&Ts EBITDA margins were 30%, 8%, and WorldComs were like 42%. And AT&T, like guys were getting fired because they couldn't keep up with WorldCom. WorldCom was just taking regular expenses that were operating expenses. They were putting them below the line as capital expenses. So they're operating more margins looked a lot better. So the point I was making, like that was 21 years.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, thanks for bringing that up. Yeah, so back in the summer of 2002, I was trading prop at UBS and I had a position in WorldCom. I own bonds that matured in early 2003, and they were trading 80 cents on the dollar. And the other data WorldCom was trading decently lower. The further maturities. And one of the reasons that I bought this bond was because they had a revolver that was, let's say, June of 2003. So they had an undrawn revolver, which they could have drew from the bank, $500 million and easily paid off this maturity. So the only way that you could get crushed on this position, and I was short a bunch of other, this is my long, this is going to pay for my shorts. I was actually overall bearish at the time. This was the smart long to have. The only way you could get crushed was fraud. I was like, what are they doing here?”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Sacks, they were taking in money at zero, and now they're lending it out at Live plus $250, $300, and even Live was 1%, 2%. But now their deposit base is probably getting a little more competitive as well. So it's like, is this loan that they're making as good a business, in a sense?”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of lending by banks to funds. So, how did we get here? The fund would just say like, hey, listen, I'm going to raise a billion. I'm only going to lever it one time so you have 50% cushion on these loans, which are all first lien loans that would have, again, 50% cushion. So let's just do diversity of the loan pool and what would have to happen. And so if they're earning LIBRA plus 550, 600, then the bank who's going to lend the fund money is saying, well, if I lend it live, let's $250, $300, that's a pretty good deal for me because I'm top of the stack of a first lien position anyway with diversity. And I think this GP knows how to make good loans. I have a relationship, what have you. If you think about where we were with zero percent rates and deposits, a place like JP Morgan, Bank of America, Goldman.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Right, right. We wanted to do X billion of that, and we've kind of hit our limit as we've seen. Private credit keeps growing and more funds are out every day trying to raise more money. There's a natural limit of that, which I think is the Fed report. I think it was about a couple hundred billion dollars.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“If one of the users or two of these situations happen, all the other banks will know this is happening and they're going to start, okay, who are worse performers? Which ones are we worried about? Let's have conversations. The correlation of, hey, this is not an issue and they're going to be able to pay us back. That goes from like, nobody has a problem to like there's a lot of problems really quickly.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Borrower. So there's no public information. So just the process of selling a loan as the GP, you're going to have to tell your borrower, like, listen, I'm going to take this private information, give it to a third party to evaluate the loan to see if I can sell it. That's going to be cumbersome. As we see when Wall Street is financing positions, whether it's listed equities or hedge fund stakes, whatever it is, warehousing lines, they're pretty good about getting paid back. I mean, outside of the credit Swiss situation, Wall Street, the lenders have very good track record.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Made for against that. We don't necessarily have to go there. But defaults are real. That's the nature of credit. When principal comes due, you pay me you don't. And yeah, we can do amendments, what have you, but at the end of the day, it's non-performing as defaults pick up, which we've seen in Q1. And again, I think it's going to be in the lower end of the market is going to have a bigger percentage of faults than the higher end of the market. If that trend does continue, you're going to see some of the worst performing portfolios of all of private credit. Their lines are going to get cut. And the leverage providers, the banks, the sell side, is going to say, you need to start paying us down this line. And if they don't have loans coming due to pay off, they're going to have to sell loans in the secondary market. Many of these direct lending loans are bilateral in nature, meaning it's just the lender and the”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm just pointing out a possibility. What could happen is given that to achieve 8, 9, 10, 11% net to investors, if you were involved as a GP, if you were in a direct lending market, you were making loans at Sofer plus 600, you had to have leverage at the fund level. So you went to a Goldman Sachs city JP, all the big banks. I'm going to lever this fund one-to-one. So if I have a billion dollar fund, I'm going to make $2 billion alone. I'm going to borrow a billion and they would give you a line of financing. And that line has covenants. And the mark-to-market of the loans, you're required to go to a third party valuation provider that gives you a mark. Most of those marks are going to be par all the time. That's part of the vol washing, in a sense. There's arguments.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Pretty good. Yeah, who wouldn't sign up for that? But the reality is that when you're in a business cycle and defaults are picking up, you would think, and we've seen in the high yield markets, we've seen the levered loan markets.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“The private credit team, private equity team, hedge fund team, infrastructure. And all of those individuals are competing to get more assets in the portfolio because that's how they ascend and maybe become the CIO. So when you have your monthly meeting or quarterly meeting and you're looking at returns and you're the long short equity hedge fund allocator and you've got volatility everywhere versus you're the private credit allocator and you're like, yo, we're doing our 10% annualized. Every month it's 80, 90 basis points. Checks in the mail. That's like a pretty powerful position in the last few years. So yeah, I've done 500 meetings as a GP and there are a few allocators that really embrace volatility. They would rather have, let's call it an ARB strategy that's 15%.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Think about institutional allocation to alternative asset management. We'll start with someone like David Swenson, who was the godfather in a sense of thinking about that alternative assets should be in any big institutional portfolio, given that you have a longer time horizon. Well, you have competition. When David Spenson first started, he was probably the chief bottle washer and was looking, you know, meeting private equity guys, meeting hedge fund, real asset managers. And now within a place like Yale or any other place, they have teams”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“These rates haven't so fast and furious that even Q1 of last year rates were really, really low. So I think going forward, you're seeing a lot more stress on these companies. You're going to have more defaults like defaults are picking up. Some bad trades were done. Private equity as an asset class has been around for 40-odd years and sometimes excess gets in the system. We saw it with the massive LVOs before the great financial crisis. I would say there's probably more excess in private equity in the middle market space than anywhere else and the direct lenders. So when we say private credit, I'm really speaking about direct lending, particularly to middle market private equity sponsored companies. I don't think it's unnatural to think that you're going to have more defaults in the sub $100 million EBITDA space than you are in necessarily the S&P companies.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“Your car leaves the lot and it's down 30%. There's volatility. It's just you're not marketing it to market. So the difference between volatility of what an asset's worth and actually marking it is different. So you've had this explosion. And now we have rates much higher. So you have these loans that are five to seven year loans, loans made in 2019, 2021. The companies thought they were going to pay five and a half, 6% interest on. And now those are 11% interest loans. If you think about the typical private equity middle market company, they were bought at 12 times EBITDA. They put seven turns of leverage on it. And seven turns of leverage only allows, if you use all your EBITDA, you can pay 14 points to eight or whatever percent interest. So now you're paying 11 where you were paying six. There's a lot less room for error right now. And we haven't seen that interest really flow through because like.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“More private equity, more private credit, but still with zero percent as sofa, libor time now, so forth, and spreads being 550 to 600, you're getting 6%, the funds needed to lever themselves to get to 8, 9%. If you're an alternative asset manager and you're coming to an LP and saying, I can give you 5, 6%, no one cares. It's got to be like at least high single digits. And what the allocators loved was there's no volatility. Jason's why I get Wall Street Journal wrote a great article talking about how Cliffwater, who's not only consulted, but also in private credit, put out on a fund a 10 sharp ratio. He interviewed Professor Sharp, I can't remember his first name. And Professor Sharp was like, that's ridiculous. Obviously, and they pulled it from it. But that's the world we're living in where like there's this ultimate sharp ratios and everyone's like, there's no vol. And like, of course, there's Val, there's Val to anything.”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source
“The growth of private credit, you kind of have to start the conversation there. I mean, you had this asset class that was somewhat of a cottage industry around the time the Great Financial Crisis and Confluence events happened probably the most important is that rates went to zero. So there was a search for yield that benefited spread product wherever. But then also you had the Fed OCC rules where banks could not lend to companies greater than six times EBITDA. So with private equity looking for debt to finance capital structures, private credit was a solution in a sense. And then as private credit equity had more and more dry powder, the results were doing well. There was more demand for private credit. So you just had an explosion of growth and this contraption set up of”
2023-05-30 · Invest Like the Best · Kieran Goodwin - Imagination, Volatility, and the Pursuit of Alpha - [Invest Like the Best, EP.331] · IDENTIFIED FROM THE TRANSCRIPT · source