#120 - Michael Nierenberg: Rithm’s Evolution Beyond a REIT

0:05Michael Nierenberg:Welcome to the Insightful Investor Podcast, a weekly series that seeks to share industry, investment, and market insights. We define insights as concepts that are counterintuitive, widely misunderstood, or underappreciated. In other words, unique ideas that you probably won't hear elsewhere. I'm Alex Shahidi, the host of the podcast and co-CIO of Evoke Advisors, a leading investment advisory firm. Learn more about our show at insightfulinvestor.org.

0:38Michael Nierenberg:Joining me today is Michael Nirenberg. Michael is CEO of Rhythm Capital, a global asset management platform with approximately$63 billion in assets under management and over$110 billion in investable assets as of the end of 2025. Following a transformative year that included the acquisitions of Crestline Management and Paramount Group. Our conversation today will explore how Rhythm is competing with larger asset managers, navigating public and private markets, and how Michael is thinking about credit, commercial real estate, asset-based finance, and housing as investors search for yield. Michael, thank you for joining us today.

1:17Thanks, Alex. Thanks for having me.

1:19Michael Nierenberg:Well, after a long career at several major investment banks, what would you say ultimately motivated you to step away and focus on building outside of the bank environment? So after working on what we'll call the sell side for many, many years, and I started my career at Lehman Brothers in 1987, working for Wes Edens, who founded Fortress. I decided in 2013, a few years after the GFC to go work on what we'll call the buy side. So I joined Fortress Investment Group in 2013 with the thought to focus on financial services and, you know, kind of leveraging the so-called skill set that I had built over the course of my career at Lehman Brothers and Bear Stearns and, you know, and then through some of the acquisitions, some of the other large, larger institutions.

2:13and it's been great you know it's been a lot of fun we've built a lot of what i would call wonderful businesses certain businesses that we had you know grown and built at fortress very proud of you know the results there a couple of those include you know which which is now known as mr cooper which was sold sold to rocket we built one main financial that was sold to apollo and then we started more and more of these, what I would call origination businesses along the way and we've taken what I would call a de novo platform, which was built under the name New Residential and we grew that into a company that makes between a billion and a billion and a half of pre-tax income.

2:57We have 8 billion plus of permanent capital, as you pointed out, 63 billion in third-party assets and managed north of 100 billion of investable assets. So it's been a lot of fun. It's a lot of hard work. It's something that we're extremely passionate about. And, you know, hopefully we continue growing.

3:15Michael Nierenberg:What would you say the sitting in the big banks taught you that you feel still directly informs your decisions that you make today as a CEO? So it's really interesting. So when I was growing up in the business, HR, there was no so-called HR, right? There was very little process. There was very little HR, you know, in, in back, even in the early days, when I was trading bonds, there was no Bloomberg. There was no concept of Bloomberg. And, you know, we kind of fudge our own yield tables and try to get as close as you could to the pin. Over the years, I learned what HR was, you know, and it's something extremely important.

3:55And from an organizational structure, it's something that's really valuable. When I look from an investment process standpoint on the other side, you know, I'm still the same. I still have meetings pretty much every day at 7.30 a.m. where we go around the room and we talk to our different investment professionals and others and to see what everybody's working on and how we're going to actually generate good returns or what our thoughts are about the markets as we think about returns for investors and how we think about managing risk. So that part of my life and our lives as we think about it coming out of the big banks hasn't changed.

4:32the regulatory environment sitting in, for example, inside Bank of America and running securitized products and other things there, you know, dealing with the regulators. That was an interesting time in my life. We're still highly regulated here because we own one of the largest mortgage companies in the U.S. So we're regulated by obviously the SEC, Fannie Mae, Freddie Mac, FHFA, and others. So I think the, you know, the regulatory stuff is something that's not to be taken lightly. I think the investment process, the way that I grew up in the business really hasn't changed. You know, when you think about more infrastructure, I think there's things that we could all do better around organizational structures that make us more efficient.

5:14Michael Nierenberg:Are there any beliefs about markets or cycles that you held early in your career that you feel later you had to unlearn? The world is changing so dramatically. And if you think that, you know, and I even go back to my Bear Stearns days, like, you know, when we got acquired by JP Morgan, and it was it was a really emotional time, I think, for same thing, probably for the Lehman folks, right, and some of the other institutions that were acquired, because there was a certain culture there. When you take a step back and you think about where we are today versus where we were then, and I brought up the example of yield tables, and then you have Bloomberg, and now we have AI everywhere, you need to be able to adapt to change.

5:54If you think you're going to be able to do something the same way that you did it five years ago or 10 years ago, you need to think about change. The investment process stuff that I alluded to is a little bit different, but the world is going to change. If you're stuck in your current way of thinking, you're not going to be able to keep up with the way things are going to change.

6:15Michael Nierenberg:Yeah, there are probably certain principles that are timeless and universal. And then there's many others where you can't be dogmatic, otherwise you'll fall behind. Yeah, I know for sure. I mean, listen, AI is in everybody's vocabulary, you know, every day, all day. You know, I look at our mortgage company, we have call it, you know, in and around 10 ,000 people between full-time employees and contractors. How do I think about and how do we think about AI and the impact that we'll have on our servicing business, for example, where we're one of the largest mortgage servicers in the U.S.? So following this call or this podcast, we're meeting with our entire team.

6:56We have a third party coming in where we technology and AI-based company, they're going to take over our mortgage servicing systems. And we're having them evaluate all of our processes in the way that we currently do things internally and how we should be thinking about that potentially and doing things, doing certain tasks more externally than we're doing spending the money internal. So there's a lot of that. And again, whether it's here and I think about the impact of AI on the so-called asset management business, that's going to change things as well.

7:28Michael Nierenberg:For listeners who may not be familiar with Rhythm, would you describe how the business works at a high level? I'll just give you a little bit of history. I'll take you back quickly. We started this company in 2013 when I got to Fortress. It was called New Residential. The idea was we were taking advantage of the dislocation and mortgage servicing rights because the banks needed to sell them because of Basel III capital rules. The rules, more capital against the asset. Banks then decided to sell them. So at Fortress, we set up this vehicle. We seeded it with a billion dollars of capital. We set up MSR funds that we managed alongside these vehicles.

8:06At that time, Mr. Cooper was known as Nation Store. So we had a mortgage origination and servicing business that was owned in our PE business. We set up this other company, New Residential, which I became CEO of. I managed the MSR funds. Through that, we accumulated quite a large number of MSRs. Today, we manage about$850 billion, between$850 and$900 billion of mortgage servicing rights. But the idea was take advantage of an opportunistic situation, use that to grow the company. We did that for mortgage servicing rights. Then we built this REIT, set up as a REIT structure. We invested in a number of different assets along the way.

8:46We built companies. New Res, we started building in 2018 when we knew we were going to be selling Mr. Cooper. and today where we sit is we manage again we have a company we bought in 2023 named Sculptor a large asset management business almost 40 billion of assets he pointed out some of the acquisition stuff we bought Crestline and that was done in 2025 so when you look at the platform our third-party assets across the firm we have large capabilities in real estate we have about $10 billion of capital invested in real estate through our sculptor business. We have direct lending. We have opportunistic lending.

9:29We have nav lending. We have a large ABF business. We have manufacturing businesses. So I think we touch a lot of what I would say LPs want today in the marketplace. There are certain sectors we're not there yet, and we're going to be extremely thoughtful on how we actually get there and grow those businesses. But the way to think of us is large-scale asset management business, managing, as we pointed on north of$100 billion of assets. We have really great manufacturing businesses in Nures and another company called Genesis. We have two separate divisions in the asset management world and we have about$8 billion of permanent capital, which is a very different thing than I think a lot of different asset managers out there.

10:15So it's not just a funds business. We have a large balance sheet. The balance sheet is 50 plus billion dollars that helps us seed funds. That also helps us make money for our shareholders in the public markets. So it's a pretty diverse group of businesses and assets that we manage. Yeah.

10:30Michael Nierenberg:You just obviously described a pretty diverse alternative asset management business. But I think you started in your early days as a mortgage Would you talk about that evolution and what prompted that? So we've always, you know, mortgages in my blood. I grew up as a mortgage bond trader starting in the, again, the late 80s at Lehman Brothers. And I did that forever. Trading bonds, managing different mortgage departments, managing different fixed income businesses. When I got to Fortress, as I pointed out, we built this vehicle along the way. It was very mortgage centric. When we got to 2022, at that point, Fortress was already purchased by SoftBank.

11:17In 2022, I sat down with one of my partners, Wes, and we discussed where we were going with the business. And we decided, or our board decided, to actually pay Fortress$400 million by the management contract back from Fortress. And then we left. and we changed the name from New Residential to Rhythm Capital. And at that point, we embarked on growing our asset management business with a couple thoughts. One is we've always been in the asset management business. As I pointed out earlier, we did some things around MSR funds and other fund management activities. Truly, though, leaving Fortress gave us the ability to focus on, and we could do it at Fortress, but on the other side of the house at Fortress, Pete Brigger and Dean DeColius and that team, They built a great credit business.

12:05So they were focused on real third-party assets where we had permanent capital and built our balance sheet. So 22 comes. We pay Fortress$400 million. We leave. We buy a business from Goldman called Genesis Capital. That was done around 22. 23 comes. Sculptor comes on the market. We acquire Sculptor. So that all of a sudden launches us into the asset management business with the thought that we want to try to change the valuation of how we get it. measured for performance, not personally, but more from a public company standpoint. So when you look at the growth in the asset management businesses, you see different asset managers, you know, so the premier cream of the crop folks like a Blackstone that could trade at 30 times DE.

12:52You know, you look where Rhythm trades today and where, you know, we still have a reach structure, so we don't really pay any tax, but we're currently trading in and around five times. So when you look at the opportunity to actually grow where we can go from today, where I feel like our equity is, quite frankly, fundamentally mispriced, but everybody's down a bunch. But away from that, if we could get our multiples to 10 times, 12 times, 15 times and grow asset management, you're going to see a$20 to$30 stock price for us.

13:22Michael Nierenberg:So if you look ahead, what do you think Rhythm will become over the next decade? The one thing I want to just be clear on, everybody wants to grow. We want to grow, but we have to lead with performance first. That is our mantra. So we have, what I would say today is we have all the pieces in place to do that. So we need to create alpha because if you're sitting down and you're competing for dollars in the asset management world, well, what's our edge versus, you know, pick company, you know, asset manager A, B or C. If we can lead with performance, we're going to attract more capital. So you're going to see our asset management business activities continue to grow.

14:01We need to grow our fee-related earnings, which is known as FRE. That's how asset managers typically get valued. And I think through that, we're going to see a higher stock price down the road. We will expand into other LOBs that are more relative to what LPs want. And the one thing we want to make sure is we have, one, the expertise in-house, and two, the ability to scale those strategies. So we're going to grow the asset management business. We'll continue to focus on our operating businesses, which drive a lot of earnings for our company. And I think through that, it'll lead to great results for our LPs and great results for our shareholders.

14:39Michael Nierenberg:And how do you think about scale as both an advantage and maybe even a potential liability when competing with much larger asset managers? I think that you need a certain scale. So if I'm going to sit down with Alex, who's running, you know, let's say Alex is a sovereign. If I have a full menu of products that I could sit down with you and discuss and show you real results and a real strategy and track record that folks get comfortable with, that's going to help us a ton. So that's kind of the scale question. I do think it's very, very difficult for any, and this is not a slight on anybody, it's very hard to deploy capital in the sheer amounts of volumes that people have raised capital over the course of the past couple years.

15:26It's just hard to do until the markets get dislocated. Because our theory and the way that we think about investing, you make a lot of money for shareholders and when assets are cheap. You make a lot of money when you have a differentiated strategy. That's how you're going to make the money. Regular way business, we could put up our, we put up, when I look at our ROEs as a business, last year I think we did something around 18. Our Sculptor Multistrat Fund, for example, did a little south of 12 gross. So when I look at some of these numbers and I think about our ability to compete, we're at a place now where we can compete against anybody.

16:05We're not going to be Blackstone. Those guys do a great job and they built a wonderful business. But there's a lot of room for us to continue to grow. But again, we need to lead with results first.

16:15Michael Nierenberg:In a business like yours, where does complexity add value and where do you feel it could actually destroy value? So we're pretty focused on what we're good at. And when I think about complexity, people look at our business and say, you guys, like, I don't understand it. You know, why'd you do Paramount? Why'd you do this? And, you know, how do you think about your business? I think we've been very strategic about how we're going to grow our business. I look at certain things like the Paramount deal. It's a dislocated sector. We had the ability to actually enter in scale by what we think are extremely attractive, cheap assets, quite frankly, and take advantage of an opportunity at a period of time to use that to continue to grow our asset management business.

17:03That's the thesis there. From a complexity standpoint, when I look at what we do, we have credit, we have real estate, we have mortgage, we have lending businesses. But I don't, you know, personally, I don't think we're that complex. And maybe we could do a better job telling our story and we could always do better in everything that we do. So I'm not that person, nor is anybody in our institution going to come to the table and say we're the best at everything that we do. Otherwise, you know, you don't want to sit down with us. But I do think there's always room for growth. But I think we're very focused on where we have an edge and where we have the expertise in-house.

17:41Michael Nierenberg:You referenced this earlier, but the past year was transformative with a couple of large acquisitions. What was the most important strategic reason those transactions were made? So we want to grow the asset management business. Again, it goes back to how we're valued in the public markets. The LP side, I'm not concerned with in how we perform because we have great teams. You look at the average tenor at both Sculptor and at Crestline and people have been there for a long, long time. I'd look at Rhythm, which was, again, formerly known as New Residential. The team here, there's folks that go back to when I was part of Bank of America that a number of folks have come over from those days.

18:21All the folks that worked with us at Fortress from 13 on, they all came over to what I would call Rhythm, which let's call it NUCO for now. So I think from a strategic standpoint, again, it's the asset management business is going to help lead the way for us. Now, you are seeing multiples compress. I used before an example of 30 times DE. You'll see some of those numbers come off. A lot of our friends in the public markets have gotten, their stocks are down, our stock is down as well. But I do think there's a lot of room for us to really rebound as we continue to grow our so-called FRE, which I alluded to earlier, as we go forward.

19:01Michael Nierenberg:How does being a public company change the way you think about long-term decision-making, even if the strategy itself doesn't change? I think Jamie Dimon nailed it and he said at some point, I don't think folks should be reporting things quarterly. So if you have to manage to a quarter, it's not great. Knock wood, we've been pretty good at managing to so-called quarterly results. We have very steady income coming from our origination businesses and carry as we think about when we have an asset where we're borrowing versus the coupon that we're going to earn on that. I think there's things that we're looking at now that are going to be less, how should I say this?

19:44It's not going to be driven, they're not driven by quarterly earnings. So when you think about it as a REIT, you got to pay out 90 % of your taxable earnings. As we think about that, there are things that we did in the past, as we grow our asset management business, we're investing in our people. We're investing in our clients. I look at Paramount. We're investing in the property. One of the buildings we have is we co-own with Flagstone in San Francisco. So we're putting a lot of what I would call dollars back into the building to create great amenity packages. And our thesis around the real estate business and the things that we're doing, we're going to change that name as well, change the Paramount name, is it becomes more of a hospitality play.

20:25Because as people are in the office and you're spending 8, 10, 12, no matter how many hours there, you want a quality experience, you want a lifestyle experience. So that's something that the way that we're thinking about our real estate business.

20:38Michael Nierenberg:What do public markets tend to misunderstand about a platform like Rhythm when they try to value it? Our concentration, quite frankly, is too much in the hedge funds, you know, in the day traders that are moving us around. We have north of 550 million shares outstanding. We need to expand our, you know, we have hedge funds, we have retail, we have our index funds, which are large holders of our equity. So it's harder to tell the story there versus things that just sit in an index. We need to really develop more of a, what I would call a long only base, which I think will help the overall performance of our stock.

21:17Plus it's pretty liquid on a relative basis. So, you know, on a good day, you get compared with the folks you want to get compared with. On a bad day, you get compared with other folks that may be taking a hit. So it's, you know, we're kind of a little bit stuck. So as we grow our asset management business, I think you'll see a change in the way that we think about our so-called corporate structure. I think, you know, how do we think about our mortgage company? How do we think about certain other things we're doing?

21:43Michael Nierenberg:Yeah, so much of it is creating a narrative, right? And a story. and sometimes the markets and maybe even the media take it a completely different direction. Yeah, listen, we're all of us. We're in the sales business, right? You have to back up your sale with performance, but that's what we do. You know, we're in a show and we gotta do the show, but you gotta back it up. So let me ask you a few questions about your perspectives on the macro environment. How are you framing the current rates and inflation dynamics? And has your view shifted at all over the past, let's say six months or so? We have been set up where we were gonna, or we have, we have a curve steep in a run.

22:26You look at the two-year note, two's tens right now are give or take about 50 basis points. Our thought was that you were gonna get a couple of Fed recuts this year. The market took those out. You look today, the two-year treasuries, give or take three and three quarters, 370 to 3.75 after last night's news. You look at the 10-year treasury, you just call it roughly four, what is it, 50 basis points. You're talking about four and a quarter-ish, right? So when I look at where we are from a rate perspective, we'll stay with our thesis around having a curve steepener on because we think inflation's still there.

23:08Core inflation is 2.4. I think there's a core inflation number, which does capture the effects of the recent events in the world. That'll be reported on Friday. I think expectations are two and a half. Obviously, the Fed goal of two, how that changes under the new potential Fed share wash could change. I don't know that it really will. I think that rates historically are not that high. So we all talk about how high rates are. You know, you got a four and a quarter, 10, you know, you got mortgage rates in and around six, six and a quarter. We got used to zero rates for so long, right? And that wasn't real and that stimulated the economy.

23:50And then you got the new, you know, we have our administration talking about the, you know, the big, you know, the great tax cuts and bills that they're trying to produce, which will stimulate the economy. I will say that I think looking at the economic data, the economy seems pretty resilient. while saying that there are pockets of concern for sure. One area that we're not seeing the concern is around the mortgage side. So, you know, when I look at delinquencies from year end to where we are today, delinquencies are still in check and things are performing, but I would say extremely well. So I think the consumer is doing okay.