Risk and Reward with Marek Capital Co-Founder Matt Cherwin

18:47Barry Ritholtz:We've seen things go wrong. This is one of the best setups we've seen in a long time. And so that's why we went out to say, um, I saw some interesting stuff. I learned some interesting stuff. There's an opportunity set that we want to prosecute right now. And it is an incredible time to do so. So we built a team. Sorry, go ahead. I was just going to know I'm fascinated.

19:09Matt Cherwin:I want to roll back to something you said earlier, which was Glass-Steagall is sort of being backdoor reapplied. Is that a function of people being risk averse? Or is that a function of people just specializing in their own silo. So you don't have, you know, Glass-Steagall for people who aren't economic and policy wonks, separated the FDIC safe banks from the riskier investment banks. And once that was repealed in the late 90s, didn't cause a financial crisis, but allowed all these banks to merge and get bigger. And maybe it made the crisis a little worse. But I don't think of it as the underlying cause.

19:56Matt Cherwin:But the idea that the market is working its way back towards that is kind of fascinating. Let's address that.

20:06Barry Ritholtz:Right. As you laid out, Glass-Eagle, to oversimplify, basically said, you can hold deposits, you can underwrite securities, you can trade securities, things like that. And there were rules. Right now, there are some rules that say what you can and can't do, But really, there's a lot more that has morphed into what people like to call private credit or we're going to extend credit through these fashions or some of the rules don't apply to this group. So we can trade the markets differently or we can make markets in a way that maybe the big banks can't. And then the big banks say, well, we're viewed as super safe because I would argue we are.

20:46Barry Ritholtz:And that has its advantages also. So it's like recreated these artificial boundaries. What is great for us and the way we look at the world is we saw that, we see that, we understand that. We also see and understand and think about all day long and put it into our portfolio construction and the risk that we build. It's all up for grabs again, right? So we've got Kevin Warsh nominated to be the Fed chair and Mickey Bowman is the vice chair for supervision. and they are, I don't know what the right adjective for it is, but they're changing the rules and they're pulling some of them down. And in my opinion, people just don't understand which of them matter and which of them don't.

21:34Barry Ritholtz:And the market moves to place on some that simply don't matter, like it's lack of understanding of what SLR was and how that worked. And we don't need to dive into that, but to simplify, they said, we're gonna remove this rule and it's a big deal. And we at Merrick said, you can take it off. It doesn't matter. So everything the market's doing in reaction to that is a potential opportunity for us.

21:55Matt Cherwin:In other words, people are overreacting to a regulatory change that is insignificant long term.

22:01Barry Ritholtz:In that example, yeah.

22:02Matt Cherwin:Coming up, we continue our conversation with Matt Sherwin, co-founder and chief investment officer at Merrick Capital, discussing why he launched the firm in 2024. I'm Barry Ritholtz. you're listening to Masters in Business on Bloomberg Radio.

22:26Hello, hello.

22:27Matt Cherwin:I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO, Arvind Krishna, and I asked him, how can companies use AI to its fullest potential to create smarter business? My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side. For example? If anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind. If anybody is not using AI to make their developers who write software 30 % more productive today with the goal of being 70 % more productive. Yeah. So we are not asking our clients

23:17Barry Ritholtz:to be the first experiment on it. We say, you can leverage what we did. We're happy to bring out all our learnings, including what needs to change in the process, because the biggest change is not technology.

23:27Matt Cherwin:It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit ibm.com slash smarttalks.

24:08Matt Cherwin:We'll see you next time.

24:11Barry Ritholtz:Learn more at adobe.com slash do that with Acrobat.

24:40Matt Cherwin:which could increase risks and volatility. Monthly income is not guaranteed. Prepare by BlackRock Investments, LLC. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Matt Cherwin. He is co-founder and chief investment officer of Merrick Capital, specializing in a variety of alternative credit and related private products. Previously, he spent 16 years at JPMorgan Chase, where he had a number of very important titles before that Citigroup. Are we in all that unique a period of time? Is the opportunity set that much greater than what we typically see in the normal?

25:22Matt Cherwin:You know, this is a little more geopolitically volatile administration than than even the previous Trump administration. Is that a driver or is it the deregulation and misapprehension of what these rule changes mean?

25:37Barry Ritholtz:I think it's a combination of what's going on. So we have, we just kind of use some little catchphrases among the team that help us sort of like, you know, gravitate around concepts or communicate quickly. We say this is an administration that's in the business of being in business. And that's just, there's no opinion or judgment one way or the other. It's just, it's just a statement. um what this environment is also we also came up with something that we thought was just made us chuckle one like it's important to have a little bit of sense of humor we found our investors actually do read the materials very closely and they tend to have a sense of humor which is good but we created this thing we called the one big beautiful chart and we just said you know what they really need they need rates to get down and they needed to come down a lot more than what the market and the curve has already priced in because of how much debt the country has, what it costs, what they want to accomplish.

26:33Barry Ritholtz:So here's what they need to accomplish. And they're going to do everything they can to. So, you know, we construct portfolio. We have a net. We have an investment thesis. We have a narrative. Everything we put in the book has to fit that narrative, has to contribute to what we're trying to achieve, has to be the best version of that, or has to protect us from what could go wrong. So getting back to your question a little bit. We think it's a very business forward environment, business forward administration. We think that it is one that needs rates to come down. We are going to have a new Fed chair in the middle of June.

27:08Barry Ritholtz:And he'll say all sorts of things in the confirmation hearing, but really, it will be a catalyst potentially for change in the middle of the year. And then we have a bias within markets to strip back some of the layers of regulation. And away from whether you support that or not, I can tell you, because I've been on the other side of it, the layers of process and bureaucracy and spending your time back solving instead of what could we do better. When you change what your goal is and how you're pointed, you're going to get different results. We think that combination is spinning flywheels in the market now that, in our opinion, people are just – they're underestimating the power of some of these flywheels.

27:56Matt Cherwin:Really, really interesting. Last question before we talk a little bit about Merrick. In the old days, and I was never a big believer in this, but everybody else was, there was some constraints on deficits and ongoing government debt because the bond vigilantes would punish you. So the bond vigilantes seem to have disappeared in part replaced by the stock vigilantes who any policy they don't like, they just sell off until they have their hissy fit until they get their way. And then, OK, thank you very much. And we're off to the races again. What do you think of the 80s, 90s era bond vigilantes?

28:40Matt Cherwin:Is that just ancient history? There's no discipline on deficit spending anymore. Or and by the way, I think deficits are not all that relevant. Look at Japan. Look at the U.S. history. We've been warned about deficits and they haven't caused much of a problem. Most of this history.

28:56Barry Ritholtz:Yeah, I mean, look, I love the term. And I think we've seen some of those episodes last year. We saw around the whatever we call liberation day in April. Like there were a couple of days where treasuries and mortgages said like enough. OK, that's it. And we're either going to have one of those days where they are giving stuff away or you got to pull back. And I think what we saw was the administration did pull back. So I think in some level, it's still there. But part of what we do at Merrick and what influences our thought process is big parts of this have been really broken down. The markets are so big now that it's been broken into specific functions.

29:39Barry Ritholtz:Like people have a thing to do and they do that in a narrow mandate. we have a more flexible mandate to us the products their widgets their tools in the toolbox for us to achieve our goals and our investment thesis and the portfolio risk and construction and diversification that we'd like to have but the markets are hyper specialized in very very large markets so you get some of those episodes where it's like oh crowded trade we got to get out So I think the question of does the administration react to the markets? Does the markets react to the administration? It's something that we've actually focused on quite a bit.

30:18Barry Ritholtz:We actually, you know, we wrote another piece in June of 2025 that we called the Warsh Fed. And it was just about what could happen. And we sort of went through to your point, like the concept of risk-free rate and credit spread are completely intertwined and commingled now and they don't exist separately. So I think that's some of the concepts you're getting at. Like, is this a problem for credit? Is it a problem for rates? Are those the same thing now? Now, one of the most interesting things, and I would just say before we get back to your question, is what was really interesting observation to us was during the last government shutdown, whatever mini version of that we're going through right now, it was almost in the data was not forthcoming.

31:08Barry Ritholtz:And then Vol went down. So it was this sort of like a little bit like if we don't know, maybe nothing's happening. But what it also was was a little bit to what you were saying is when things were a little less hyper focused, they actually were a little less jumpy around small moves. And that was a big takeaway, big takeaway for us. It's a big thing you're going to hear from Kevin Warsh. If he ends up in the chair seat, you're going to hear a long narrative from him for his time in that seat of we need to step back from the day to day and the minute by minute information and think about the big picture and the trend and where we're headed and be a little more forward looking.

31:55Barry Ritholtz:I think that's the kind of guidance that you will get from that chair.

31:59Matt Cherwin:Really, really interesting. So let's just start out with why you left the comfort of a big shop to have the headache of your own firm. What's the elevator pitch? What problem does Merit Capital solve that couldn't be solved at a large Wall Street bank?

32:19Barry Ritholtz:Look, I think quite simply, there are some things that banks can do and some things that banks can't do. There are some things that they can do and that they don't want to do. In my career, I've always been involved in these types of markets, being rates, mortgages, securitized products, corporate credit, the equities related to that around it, these types of specialty finance operating companies, and always felt that when you can apply the various lenses to these products being the trader lens, the structure lens, the operator lens. You understand it better and you get the gearing in the pieces.

32:58Barry Ritholtz:And when you learn about the financial system that it sits within, then you actually can understand, but take advantage of the risk and return in a more elevated and efficient way.

33:11Matt Cherwin:I want to address that. Is it that the big firms, the bigger banks were risk averse and didn't want to take advantage of it where they were prohibited on a regulatory basis or when they're just doing their macro risk assessment? Hey, we'll go this far, but no further.

33:28Barry Ritholtz:I think it's even simpler than that. We look at the world through our lens. We look at the world through the Merrick lens of money, capital, credit, liquidity, and regulation, which drives economies, markets, and prices. That helps us understand the drivers of the capital markets that we sit within, helps us understand monetary policy, housing, finance, commercial real estate, finance, understand both the gearing of it. Then you can look at something and you can say, okay, I'm looking at Citigroup. I could buy it. I could sell it. I could understand what they're doing in the markets they have a footprint in, what that means for the markets.

34:09Barry Ritholtz:Do I want to buy that? So like, where are the flywheels? What does it spin to next? So everything we were doing was very much about what do we want to do because we see a very large addressable opportunity where we have a unique perspective, a defined lens, and a way of applying that to these big liquid markets that we think very strongly we can take advantage of in a way that people simply haven't had the opportunity to learn about and to understand and apply to these products with the type of flexible mandate that we have. have, which boiled down means we look at the world a little differently.

34:49Barry Ritholtz:These are big addressable markets which have dislocations, volatility, and opportunity all the time. And we can use that combination to achieve what's a very, very simple goal, improve the return a little bit while reducing the risk a little bit.

35:03Matt Cherwin:That's all anyone can ask for, better returns at lower risk. um i'm i'm kind of fascinated by the overall merrick investment philosophy we'll get to but let's let's start a little bit with structure i think of you guys as an alt credit shop but you also look a little bit like a multi-strat shop like a is it so kind of a hybrid like tell us

35:27Barry Ritholtz:about the structure um we just define what we do okay we are who we are we do it the way that we do.

35:38Barry Ritholtz:Right now, we're running a hedge fund, which trades these products as tools in the toolbox, as widgets. We do it in one collaborative portfolio. So our setup, our structure, we've got an amazing team. We have specialists in rates, in mortgages, in non-agency mortgages, in ABS, in credit, in CLOs. I am on the phone every day with traders and salespeople myself. We trade it as one book.

36:07Matt Cherwin:One portfolio. So it's really a multi-strat within a single expression.

36:15Barry Ritholtz:It is what we think is the best expression of the trade.

36:19Matt Cherwin:I shouldn't call it multi-strat. It's really multi-asset. It's a variety of different credit assets all under one umbrella?

36:26Barry Ritholtz:Within our lane, okay, sticking to our knitting, what we believe we know very well, what we know we have a differentiated insight into and extracting from that. Okay. The team is phenomenal. They have a ton of buy side and sell side experience. They work very well together. It's very exciting to be, I mean, and additionally, doing this together, like Derek and I doing this together, putting our name on the door, like Marek is Matt and Derek. Right. Because we spent way too much time trying to think of what's a clever name. They've all been taken. Good luck in New York. Means, you know, alpha extraction in Sanskrit or some something, you know, and Derek's wife one day was like, enough.

37:15Barry Ritholtz:It's Marek, Matt and Derek. Now go do some real work. And I think she said in a little bit more of a spicy way. But we were like, yeah, that could work. All right, let's do that.

37:26Matt Cherwin:I think just a little footnote, if you've ever incorporated an LLC or any other entity in New York State, every Greek and Roman god, every Babylonian god, every Cerebus, name the creature from mythology. It's either a fund or an LLC. They're all taken. and it's astonishing.

37:46Barry Ritholtz:But the real point I wanted to make also that I don't want to lose is this is putting our name on the door. Okay, it's our name, it's our reputation and that really cemented it for us. That was something we really wanted. I took some time off and which was fantastic and I met some of the most amazing and interesting people in the world. When you're unaffiliated, people speak to you in a different way because they had no one to talk to. Okay, I sat down with the CEO of one of the world's largest pension fund sovereign wealth funds. And we had, and I'd never met the person before. We had an hour long conversation because he just needed to talk to someone.

38:25Barry Ritholtz:And I learned a lot in that. And I met some of the most interesting people in venture cap, in alts, in private equity, et cetera. And it was just more a way of learning parts of the system. But it got to the point where after my, you know, academic wander through the wilderness, I was like, okay, you know what? Because at the time we had three teenagers living at home and it was an amazing time. I used to always say, you should be able to retire in your forties and go back to work in your fifties. Like that's the way business should work. Um, obviously that's a luxury that very few have, but, um, I was getting to the point where I was like, okay, I feel great.

38:59Barry Ritholtz:I want to do this. I miss markets. I love this. I want to get back to it and I want to do it in the way that I want to do it. How long of a gap was that between chase about a year off you know it's a you know it's a riot so in our deck we put a little timeline of my experience and derek's experience and just to help people understand who hadn't met us who we are and at the very end i put you know this is my background simple i was here for 10 years i was there for 16 years and then we put like a little one year nugget on the end of the timeline that just said chilling but no g no g just c-h-i-l-l-i-n right i don't remember

39:36Matt Cherwin:Which is a very un-Wall Street sort of thing.

39:40Barry Ritholtz:Well, it was like our 900th version of the deck. And we were just getting a little punchy. And we're like, it made us laugh. Okay. You got to have a sense of humor. It made us laugh. So we're like, this is going in. Every investor brings it up. They bring it up and they love it. And you know what? To us, it's like, wow, you are reading every part of the deck. And also it's nice to know you have a sense of humor. But getting back to it was like -

40:04Matt Cherwin:People, this is always shocking. People read the footnotes.

40:08Barry Ritholtz:That's been a big learning for us. They read it. So when we were doing all this, you know, my wife was like, yeah, why would you want to do something for anybody else? And I thought to myself, exactly. What are we going to work harder at? What are we going to make sure succeeds? The thing that we put our name on the door, our reputation that we believe other people don't get it, that we believe is the right way to approach these markets, that we believe can extract from a setup, which is one of the best that we've ever seen. So if you tick all those boxes, why would you do it for anybody else?

40:49Matt Cherwin:Really, really intriguing. So it's 2026. I'm legally obligated to ask, how do you use artificial intelligence in research, portfolio construction or operations at Merrick Capital?

41:01Barry Ritholtz:Sure. I would make two points. I'm an AI optimist. That's not one of my two points. That doesn't count. We use it every day. We build stuff more quickly. We build our own tools and we build them more quickly than we ever could before. You know, the guys on the team, they're building stuff at their desk in a week that would have taken a year to do somewhere else, literally. And I know because I've been in that. And then once you built it, it would have taken like six months to get approval to release it into your, et cetera. This is like light speed versus what we used to do. Now, changing a little bit of how you frame that question, AI is a really, really interesting thing in financial markets as well.

41:46Barry Ritholtz:Okay, so I don't think we're there yet, but we're going to get to a place where people are using it for risk management. They're using it for compliance. They're using it for KYC. Put all that aside. The most interesting to me right now is we look at the AI CapEx boom and we say, here's a product that is commercial real estate with securitization technology around it. You're talking about where is it? Is it built? If not, how long is it going to take to build it? Who are the tenants? How long are the leases? What are they paying? What's it worth when it's all done? Is there residual risk like you have in an auto lease?

42:21Barry Ritholtz:only some of it comes to the securitized market because it's just not that that market is not big enough for it. So it comes to the corporate bond market. So that to us is like that's the type of opportunity that piques our interest where we say this is something that looks like ABC. And being wrapped up and put into a different market that is asking one, two, three. And those are good questions, but it's really like, put it all together. Look at all the factors. What are the additional? Are you getting more structure? Are you getting less? Are you charging for the risk? Are you paying away for it?

43:00Barry Ritholtz:So the AI CapEx boom to us is actually like a source of very cheap risk for us to look at. And each one has a little bit of different flavor, and we're very opinionated about which ones we like.

43:11Matt Cherwin:It sounds really fascinating. It also sounds like anytime there's a novel area, the opportunity for mispricing seems to really.

43:22Barry Ritholtz:There's that. There's that. We look at some of those first time issuers. We have like we have some things in the book. We have something called the North Star Playbook, which is what are companies and bonds that have clear missions and objectives that they can execute on that are aligned with us with the instrument that we have or misaligned or that they're not able to. execute. But some of it, it's actually not just about the novel structures. Let's look at agency mortgage-backed securities. Those have been around for a long time. Okay. A couple of weeks ago, tweet from the press or whatever we call a post on Truth Social at 4.26 PM.

44:00Barry Ritholtz:I've instructed my representatives to buy 200 billion of agency MBS. Boom, bomb in the agency mortgage-backed market. This is a, there are, was it 12 billion, 12 trillion of these things outstanding in the agency mortgage market. It's nine trillion, hundreds of billions of a trade every day. And that was a aftermarket post tweet. And what do you do when that happens? That set off a convexity event. So then -

44:28Matt Cherwin:Are you out buying into that rise to take advantage? Are you a price taker or a price maker? What are you doing when that's happening?

44:36Barry Ritholtz:It's both. We look instantly at like, what does this mean? what was our expectation. Now, in that instance, we expected the GSEs, who will be the ones who actually buy it, we expected the GSEs to be buyer. I think our view was a little bit at the high side or out of consensus even. We thought this is going to be a support mechanism for this market over the course of the year. Fannie and Freddie are going to buy a lot of this stuff.

44:57Matt Cherwin:Assuming they haven't already started to accumulate.

44:59Barry Ritholtz:Well, they had been, and that's a great point. They had been. But buying 200 billion with like an aftermarket tweet and nobody knew like, is it going to be 200 and then another 200? Are you going to start buying? Are you going to buy 40 tomorrow? How's this all going to work? This exceeded even our expectations. And you saw right away. I think we were positioned for that type of event. We were positioned to take advantage of some of the policy risk as opposed to get hit by some of the policy risk. You could see that there was a massive short covering rally right after that. and you could see that that wasn't necessarily people's expectations and how they were set up for it.

45:39Matt Cherwin:I have a mortgage-related question to this, but I'm going to save it to the next segment. Coming up, we continue our conversation with Matt Cherwin, co-founder and chief investment officer of Merrick Capital, discussing credit and risk in today's markets. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

46:10Hello, hello.

46:11Matt Cherwin:I'm Malcolm Gladwell, host of the podcast Smart Talks with IBM. I recently sat down with IBM's chairman and CEO, Arvind Krishna, and I asked him, how can companies use AI to its fullest potential to create smarter business? My one advice to them, pick areas you can scale. Don't pick the shiny little toys on the side. For example? If anybody has more than 10 % of what they had for customer service 10 years ago, they're already five years behind it. If anybody is not using AI to make their developers who write software 30 % more productive today with the goal of being 70 % more productive. Yeah.

46:59Matt Cherwin:So we are not asking our clients

47:01Barry Ritholtz:to be the first experiment on it. We say you can leverage what we did. We're happy to bring out all our learnings,

47:08Matt Cherwin:including what needs to change in the process, because the biggest change is not technology. It's getting people to accept that there's a different way to do things. To listen to the full conversation, visit ibm.com slash smarttalks.

47:43Matt Cherwin:We'll see you next time.

47:55Barry Ritholtz:Learn more at adobe.com slash do that with Acrobat.

48:22Matt Cherwin:for investing. Risks include principal loss in the use of derivatives, which could increase risks and volatility. Monthly income is not guaranteed. Prepare by BlackRock Investments, LLC. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Matt Cherwin, co-founder and chief investment officer of Mara Capital. Previously, he spent 25 or so years running credit and various types of risk at JPMorgan Chase and Citigroup. So we were talking earlier about the Trump tweet directing the GSEs to buy$200 billion worth of agency paper. You would have thought that should have sent yields plummeting and mortgage rates down, which would stimulate the housing market.

49:07Matt Cherwin:I assume part of the motivation for that tweet and for that purchase. What's going on in that market And why does it seem so difficult to drive rates lower? Right.

49:20Barry Ritholtz:That's a great question. And as silly as it sounds, like$200 billion, it's just not enough.

49:25Matt Cherwin:Pocket cash. Right. Walking around money.

49:28Barry Ritholtz:That's one way.

49:29Matt Cherwin:I mean, in a$12 trillion market,$12 trillion, it's not even 1%.

49:34Barry Ritholtz:If you've got$35 trillion in treasuries outstanding and yeah, yeah. It's a big number and it moves the needle. but what they really want to move it and keep it there. Like that's a little bit of the hard part because don't forget that the Fed owns 2.2 trillion. So they're going to buy 200 billion. Didn't give a lot of information and that sort of helped them in that moment. The lack of information after probably led some of it to kind of like bleed out and unwind a bit. But the Fed owns 2.2 trillion and those are paying off. And that's approximately$180 billion a year. So then you start to think about like, well, if the rate moves and mortgage prices go up, are some of the money managers going to sell$100 billion over time and do kind of neutralize it?

50:26Barry Ritholtz:So I think it's helpful. It's indicative. Here's the real takeaway for us. Okay, so at that moment, it's how do we trade this? What's the price? What's the next step? But then we're really thinking from there, like, what does this mean? what's going to happen next and sort of coming full circle. What it really does is show you how hard they're going to try to drive the mortgage rate down, to drive rates down overall, to sign up for an agenda and a plan to get rates down. Okay, so some of it is what do we do in that specific market? And some of it is how is it informing our view of the bigger picture?

51:06Matt Cherwin:So you guys have two – I don't want to say conflicting but somewhat different risk factors you're juggling with. Obviously, when you buy paper, you're thinking long term and we want to watch this play out to our broader thesis. But at the same time, you're actively trading on the short term. how much do these complement each other or do you ever find yourself long in one duration of the portfolio and short in another how do you how do you balance this out yeah i mean we have longs

51:39Barry Ritholtz:and shorts across the book within mortgages within credit um we there's we're you know long what we like and short what we don't to keep it super simple um or long what helps uh contribute to our thesis or protect and vice versa and you know protect the convexity profile that we're looking to achieve. We trade every day. We are active in these markets. It's part of a medium-term thought process, how they're going to play out. But every day is iterating on that. Is this still what we think? Are we positioned with the best version of it? Do we have the bonds that are going to contribute to what we are trying to achieve?

52:21Barry Ritholtz:Like right now, we're very focused on the flywheels that exist within financing markets. And if you think about what does that mean? Okay, so rates come low. Rates go lower. We talked about that a little bit. But credit spreads are also really tightening. And when rates are lower and credit spreads are tighter, your cost of borrowing has gone down. It means you can refinance all sorts of assets. It means some assets are even, at that point in time, worth more, valued highly. Now that it's worth more. You've got a lower LTV loan that you could take out an even tighter credit spread on. And how do these spin?

52:58Barry Ritholtz:And what is it? So this is very much what we're thinking about now. I think the market completely underestimates the power of those flywheels and what it can be achieved. So that is one of, we look at our portfolio and say, we want to have about 20 trades in it. And a trade is not one line item. A trade could be 30 line items, but the flywheel is a trade. It's a little bit of maybe even a bigger, higher order one. But we look at what is happening at that moment. Is there something to take advantage of? But also, what are the ripple effects of what's happening in that moment? And what does the market need to do?

53:38Barry Ritholtz:What is it going to do? Does it understand this? And then we unpack it and say, where's the opportunity? So coming back to what we talked about, we believe when you look at the world through this lens, We look at markets through the Merrick lens that the lack of connections made through these markets and the lack of extracting from some pretty obvious pockets are an opportunity. And like we talked about, to improve your return and reduce your risk. And it's a process. So it's just as much a process and a machine through which you're extracting alpha from the market. We have our views. We hope to be right.

54:22Barry Ritholtz:It's also, it's a process through which you work through these markets that you extract all the time. And the mandate is pretty clear. Like, as I think of it, the mandate's very clear. You need to make money when markets go up and you need to make money when markets go down every day, every month, every quarter, every year. And you probably won't, but that's the mandate. And that's where you're going for it. And it's It's quite simple when you frame it out that way.

54:47Matt Cherwin:You mentioned in 2019 there was a sea change in how you perceived what was happening in the market and how different that had become. How does that affect how you look at and define risk? Risk definitions have obviously changed over your career, but 2019 was such a sea change. What's different about managing risk today?

55:10Barry Ritholtz:Yeah, I think – I believe managing risk at scale is a skill. Okay? You have your numbers and you want to know what those are. And those are indicators and those are starting places. VAR is a number and a starting place and an indicator. Stress is a number. DVO1, CSO1. These are, I like to look at the world in a stress-based framework and we create a bunch of different stresses. Some are quite simple. Rates go up, rates go down. Credit crunch, a flight to quality. Some, we had our little, like, you know, we're getting a little punch. We have one we call QE for Eva and Eva. And looking at these, it's really about, like, it's a starting place for a conversation.

55:55Barry Ritholtz:Okay? Because you do need to know where it's coming from and what's the attribution. What's the return attribution? Where are you hoping it comes from? And what's the risk attribution? And very importantly, what could go wrong? understanding that what you're trying to achieve, but knowing where the exits are. I think it's really like a philosophy to risk and to managing risk to make sure you're pointed to achieve your goals while managing your risk properly and knowing what you would do if things changed, right? You have a plan and then things change.

56:32Matt Cherwin:Really, really interesting. When you're looking out at a variety of different opportunities, what do you think today presents the best risk opportunity? You're looking at structured credit, corporates, relative value. What is really drawing your attention?

56:49Barry Ritholtz:Yeah, we really thought that one of the places to extract from the flywheel is in securitized markets. Actually, as an example, we've been very focused on trophy quality office and gateway cities, and this goes back a little ways.

57:03Matt Cherwin:These are the super A residential commercial real estate office.

57:08Barry Ritholtz:So that all came to be from us pulling at the thread of how the financial system works. We talked a little bit about the new GSIBs. And what you had was everybody was going back to work, back to the office, but took longer than we kind of looking back on it. That took a long time. The part of the financial system that was changing were those new GSIBs, Apollo, Aries, KKR, Blackstone, BlackRock. And they were coming back to the office and they were growing and they were finding that two things. One, they needed nice offices to kind of, you know, get everybody where they want them to be. But also they were growing and they outgrew what they had.

57:40Barry Ritholtz:And then they went looking for more. And what they found was there's actually not that much trophy real estate out there. And so like our view on the evolving financial system led us to have very strong conviction about a supply demand imbalance in commercial real estate when applied correctly. And then we just looked for what's the best place. And it's tightened a lot. But actually, we think it continues to and has been because it's continued to be one to two steps behind the fundamentals. So what that really means, the way we think, to wrap it up in a nutshell, this is a triple B bond that we think is a double A.

58:19Matt Cherwin:Really, really. Because everybody's painting with a broad brush of, hey, forget Bs. Even A buildings are 60 % occupied in terms of staff.

58:29Barry Ritholtz:They're 100 % occupied with the waiting list.

58:31Matt Cherwin:of staff returning to office. So it's fully leased, but the, what is it, Castle Key Cards are running 60 % of pre-pandemic levels in a lot of cities. But the A +, the bigger shops, the JP Morgans, they want everybody back in the office, as does Goldman Sachs, as does a lot of these places, and they're all in trophy properties.

58:52Barry Ritholtz:And it's not just New York, it's Miami, it's actually San Fran has come a long way. There are certain buildings there that we like. Like we actually, I would say a little bit out of consensus, we like D.C. Not the government buildings, but nice offices. Like we said, this is an administration that's in the business of being in business, which means you got to go see them and make your case. You want to get some business done, which means you need lawyers with a nice conference room that need a decent office and et cetera, et cetera. I mean, like it sounds a little glib, but it's true.

59:21Matt Cherwin:It's the cost of doing business. It's true. Yeah, absolutely.

59:23Barry Ritholtz:So you can see there are certain companies that are buying buildings, knocking them down in D.C. and building brand new ones. And there are buildings that are being taken offline to convert to Resi. By the way, everything we wrapped up in what we said, the conversion from Office Resi is actually spinning faster now. In D.C., some buildings are being – and just outside D.C., some buildings are being converted to data centers. So actually, like, stocks being removed all the time. Anyways, it's just an example of how we're pulling on threads and we're finding where we can best take advantage of it and what are the next couple steps.

59:59Barry Ritholtz:And ultimately, we're looking for what's something that's already gotten better except the price hasn't changed yet.

1:00:06Matt Cherwin:That's really interesting. You've mentioned stress scenarios a couple of times. We know that correlations have a tendency to go to one and liquidity disappears.

1:00:18Barry Ritholtz:Well, I think I've seen that personally, right? Enough times over your career. Liquidity disappears. I think I would just wrap that up. I make two comments to people. I say like, one, you don't go out of business because your assets, you go out of business because your liabilities. And when you start looking at that side of the balance sheet first, then you understand things a little bit better. And then also, you know, with my traders and all the people I work for, it's really great because some of the people I hired a long time ago, they're MDs at places. I actually take a lot of pride in the people I've worked with who have gone on and done fantastic things.

1:00:51Barry Ritholtz:I really, really hate the phrase money good. Okay, I don't think anybody should be allowed to say it. It is this like false crutch. I also, in many, many conversations, have said to people, I think you're right. In fact, you've convinced me. I believe you are right. I'm just saying you know you're going to get fired long before we know the answer to this question. Okay, let's take everything we thought, everything we've known, and let's put it into the context of how do we apply this in markets? What's going to happen? What's everybody else doing? And how do we take advantage of that?

1:01:23Matt Cherwin:Really, really fascinating. Last question before I get to my favorite questions. What do you think investors -

1:01:30Barry Ritholtz:I thought those were your favorite questions.

1:01:31Matt Cherwin:Oh, no, you'll see the favorite questions. All right. What do you think investors in the credit and alt space are not talking about, but perhaps should be? What topics, assets, geographies, data points are getting overlooked, but really shouldn't?

1:01:48Barry Ritholtz:Yeah, so that's a great question. We touched on a little bit. They're underestimating the power of this flywheel. Like with the background I've had and we've talked about and I've seen a lot of things blow up, like we could come up with a lot of examples of things that could go wrong. I think they're underestimating the things that could go right or what the power of financing and the mechanics around financing and the provision of liquidity and credit spreads when they're good and when they're tight and when the machine is flowing, what that financial engineering can really do to both recover value and create value.

1:02:25Barry Ritholtz:I think they're underestimating. The other quick thing is in the middle of the year, if Kevin Warsh ends up sitting in that seat and if we get a little bit of the setup that he's looking for, he's going to change everything. So he believes we're going to have a big productivity dividend from AI and we're going to have a big productivity dividend from deregulation. And that would allow you to have lower rates and a smaller Fed balance sheet at the same time. And if he gets a little bit of what he needs to craft that argument, we're going to have a very different second half of 26 than the first.

1:03:04Matt Cherwin:Really, really interesting. All right, let's jump to our favorite questions, our speed round. We'll get you guys out of here at a reasonable time. Starting with, who are your mentors who helped shape your career?

1:03:16Barry Ritholtz:Oh, I've worked for some pretty amazing people. And I try to learn from everyone. I just had the bosses that I've had are, you know, legends in this industry, whether it's Bruce Richards, T.M. Perlow, Jimmy DeMar, Matt Zames, Daniel Pinto. I mean, these are these are people who defined these markets and they all had a huge impact on my career.

1:03:39Matt Cherwin:Really interesting. Let's talk about books. What are you reading now? What are some of your favorites?

1:03:45Barry Ritholtz:Oh, you know, but like I am in front of a computer screen and reading so much and I read so much analytics, research, et cetera. When I get home, it's a little bit more like hang out with my wife and kids and a little TV.

1:03:57Matt Cherwin:Well, that's my next question. What are you listening to or streaming? Give us your favorite Netflix, Amazon Prime, whatever.

1:04:05Barry Ritholtz:I will watch pretty much anything Taylor Sheridan, you know, like the whole Paramount Plus. We just finished season two of Landman.

1:04:11Matt Cherwin:It's so good.

1:04:11Barry Ritholtz:Like Landman, all the Yellowstones, everyone, 19, 18, 23, 19, all of those, Lioness, any of those.

1:04:19Matt Cherwin:Lioness was also great. There should be a new season of that coming out one of these days.

1:04:24Barry Ritholtz:Yeah, there is. I mean, I think I've watched both seasons like 100 times.

1:04:28Matt Cherwin:Final two questions. What sort of advice would you give to a college grad interested in a career in investing, credit, trading, what have you?

1:04:37Barry Ritholtz:I just think it's not, you know, it doesn't have to be a commitment for life. Just look at it as what's something I'm interested in being interested in. I think you can pick the kind of people you work with and you want to be around good people who will teach you, who will support what you're doing and just say, I'm going to give this a spin for three to five years. And if I like it, I love it. Maybe I'll sign up for another five. But, you know, you have an opportunity to try something out and see if it's for you.

1:05:05Matt Cherwin:And our final question, what do you know about the world of trading credit, investing in alternative sources of liquidity and other products that would have been helpful 25 or so years ago when you were just getting your legs onto you?

1:05:21Barry Ritholtz:I wish I knew a fraction of what we are applying at Merrick any point before we did this. If I knew a drop of what we're doing when I sat in other seats, yeah, I'll put that all in the I wish I knew bucket.

1:05:38Matt Cherwin:Really, really absolutely fascinating. Matt, thank you for being so generous. Thanks for having me. With your time, we have been speaking with Matt Sherwin. He's co-founder and chief investment officer of Mara Capital. If you enjoy this conversation, well, be sure and check out any of the previous 600 or so we've done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, YouTube, wherever you get your favorite podcasts. I would be remiss if I didn't thank the crack team that helps us with these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher.

1:06:18Matt Cherwin:Anna Luke is my podcast producer. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

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