Jul 3, 2023 · 1h 3m · capital-allocators
Porter Collins and Vincent Daniel - Big Shorts and Big Longs (Capital Allocators, EP.325)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews Seawolf Capital co-founders Porter Collins and Vincent Daniel, exploring their journey from the historic subprime mortgage short trade to their modern unconstrained, deep-value thematic investing framework.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 17% of the talking time here. How this is scored →
Ted as informed peer 2.3 Guest teaching 3.3 Guest disagreement 2.3 Ted pushing back 0.6
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 22:14 Rejecting pod risk management as ticker management
Porter Collins dismisses multi-manager pod methods, insisting that enforcing arbitrary aging rules and factor boxes completely divorces trading from actual fundamental investing.
Hardest push from Ted ▶ 48:00 Ted drilling down on drawdown tolerance and volatilityTed presses the guests to quantify the explicit drawdown and return volatility numbers required to achieve their extraordinary multi-year returns.
Biggest teaching moment ▶ 37:00 Dissecting the deposit walk draining bank moatsVincent Daniel explains how yield competition from T-bills and money market funds has permanently impaired regional banks' sole historical advantage: low-cost sticky deposits.
Ted holds their own ▶ 24:00 Ted contrasting vol targeting with contrarian valueTed demonstrates sharp structural insight by pinpointing how volatility-based risk limits paradoxically force managers into pro-cyclical risk-taking at market peaks.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Ted's Opening Monologue: A Lesson in Sunscreen | 1 | 0 | 0 | 0 | Ted opens with personal anecdotes about Calvin Trillin and sunscreen before prompting the guests about their early backgrounds. The exchange is light and introductory. | |
| Formative Mentalities: Athletic Grit and Queens Roots | 1 | 1 | 1 | 0 | Ted prompts Collins on Olympic rowing grit and Daniel on his upbringing in Queens supporting the Mets and Jets. Both guests offer personal narratives without friction. | |
| FrontPoint Partners and Early Hedge Fund Risk Models | 2 | 3 | 2 | 1 | Ted asks about early equity hedge fund models at FrontPoint. Collins and Daniel explain how primitive early risk models were compared to modern multi-manager factor systems. | |
| The Data Work Behind the Big Short Subprime Trade | 2 | 4 | 2 | 1 | Ted questions how they maintained conviction when many called wolf on subprime. Daniel explains the forensic spreadsheet waterfall analysis and data tracking from Moody's tapes. | |
| Reflecting on 'The Big Short' and Jeremy Strong's Portrayal | 2 | 2 | 2 | 0 | Ted asks about their portrayal in The Big Short and the subsequent launch of Seawolf 1.0. The guests share colorful anecdotes about Jeremy Strong and early fund challenges. | |
| Inside the Multi-Manager Pod System at Citadel | 3 | 5 | 4 | 1 | Collins and Daniel break down why Citadel's pod shop architecture felt alien to their fundamental style, describing vol targeting as managing tickers rather than true investing. | |
| Contrarian Value Investing vs. Momentum Pods | 3 | 4 | 3 | 1 | Ted asks about managing risk against momentum pods. Daniel articulates why high-leverage multi-manager pods are structurally forced into short-term momentum. | |
| Expanding Beyond Financials to Become Broad Generalists | 2 | 3 | 2 | 0 | Ted asks how financial specialists broadened into generalists. Collins explains evaluating asset-leasing businesses and recognizing their inability to play high-multiple growth games. | |
| Thematic Value Investing and the ExxonMobil Bet | 2 | 4 | 2 | 0 | Daniel describes their contrarian thesis on ExxonMobil when it was dropped from the Dow, detailing an exercise checking top asset managers to prove energy was entirely unowned. | |
| Portfolio Construction and Balance Sheet Margin of Safety | 3 | 4 | 2 | 1 | Ted probes their portfolio construction. Collins outlines applying Seth Klarman's margin of safety discipline to deep value balance sheets and cyclical cash flow inflection. | |
| Structural Banking Headwinds and Direct Lending | 3 | 5 | 4 | 1 | Daniel and Collins deliver a blunt critique of US commercial banks, arguing the deposit moat has eroded to money markets while private credit shops like Ares out-underwrite banks. | |
| Macro Disconnects, Real Estate, and Sovereign Debt | 3 | 4 | 3 | 1 | The guests detail structural macro headwinds including commercial real estate mismarking and the mounting domestic sovereign debt burden threatening the risk-free rate. | |
| Asymmetric Opportunities: Brazil Longs and Energy Equities | 2 | 4 | 3 | 1 | Collins and Daniel lay out their long Brazil thesis via Petrobras, contrasting Brazil's fiscal position against Western policies and challenging market preconceptions. | |
| Managing Drawdowns, Exposure Sizing, and Volatility | 3 | 4 | 3 | 1 | Ted asks how they manage drawdowns and communicate volatility. Collins recounts battling Citadel risk managers who forced leverage when ideas were exhausted. | |
| The Future of Seawolf 2.0 and Outside Capital | 2 | 3 | 2 | 0 | Ted asks what conditions would prompt taking LP capital. The pair explain their model is non-scalable and requires partners who actively challenge theses. |
Statements from this episode (34)
Collins: Steve Eisman required five weeks of reading before hiring him
“And he said, before you even start working for me, you have to spend five weeks reading, knowing about who I am, what I like, and the books I like.”
Collins: FrontPoint anticipated the subprime credit crisis years early
“Everyone likes to talk about the big short trade. We knew this was happening. We'd talked about this for two, three years of waiting for this credit cycle to happen. It was not a surprise to us, and we were really ready for it.”
Daniel: FrontPoint's subprime trades would get PMs fired at modern Citadel
“Because I can imagine if someone took what we were doing way back when and put it in a Millennium slash Citadel native IDEO model, we'd probably be fired on the spot.”
Collins: FrontPoint risk managers opposed entering the famous subprime short trade
“The extent of the risk management that occurred at Frontpoint, there were two risk managers, lovely guys, but the only thing that they really pushed back against us was on getting in the subprime trade because they said, well, you'll never get out of this thin…”
Collins: FrontPoint returned 200% on the subprime short without heavy leverage
“Even on one of the things that we got wrong about the subprime trade is that we didn't put a lot of leverage on it. And that's why we made, what, 200%.”
Daniel: Few investors tracked monthly subprime securitization data in the late 1990s
“At that time, the primary funding source for all things subprime were securitization, and very few, if any, were actually looking at the data on a monthly basis at that point in time.”
Daniel: Jeremy Strong's intense preparation made it obvious he'd be a star
“We knew from Jump, he was gonna be a star, because he took so much care and pride and work in being me, to the point where he would call me at night, 1010, 30. He goes, I have to talk to you. And I was like, all right. He goes, I have a scene tomorrow. It's th…”
Collins: Sophisticated analytical investing does not reconcile with QE-flooded markets
“Being a sophisticated, analytical investor to markets flooded with QE doesn't quite reconcile.”
Collins: Seawolf fell apart after down 8% year and losing anchor investor in 2016
“It was our worst year we'd ever had, and we were down eight percent, and we had a very small, tight investor base, and the biggest one pulled, and then everyone got nervous, and then Danny decided to retire, and the whole thing fell flat.”
Daniel: Multi-manager volatility targeting dictates modern daily market flows
“The lower the volatility in the world, the more capital they're deploying. And that was a very interesting concept for us. A concept to that was an eye opening experience. And more importantly, probably now it is dictating a lot of the flows and the performanc…”
Collins: Citadel's pod shop model is risk management, not actual investing
“No one has done it better than Ken Griffin. But one of the things that really struck me was that it's not investing. There's actually no part of investing to it. It's managing a bunch of tickers within a risk framework.”
Daniel: High leverage forces multi-manager hedge funds into short-term momentum trading
“If you work at these shops, it took me a while to figure out, but almost all of them
Are 90, 95% of the time long short-term momentum, which is in English is long something that is working right now.
And when you think why they have to do it, if you're so leve…”
Collins: Few Hedge Funds Have Made Money on Shorts Over Past 15 Years
“Part of the problem with hedge fund business as of the last 1015 years has been the short side because not many people have made money on the shorts.”
Collins: Seawolf Historically Shorted Banks for 15 to 20 Years
“And as long as I've been an investor and doing banks, I've hated banks, and there's been a lot of bad management teams, and so we historically, for 1520 years, had been short banks along other parts of financial services.”
Daniel: Energy was one of our career's greatest contrarian value trades
“One of, probably, I would say the biggest for us was when Exxon got kicked out of the Dow for Salesforce.com, Us schmucks, everybody else in the world goes and buys Salesforce.com because it's going to be in relative indices and the like. We go, let's take a l…”
Daniel: Major asset managers had zero energy stocks in top 50 holdings
“We took all the large asset management complexes. I think Wellington. Wellington, Fidelity, Neuberger, you name, Capri, you name them, and say, okay, let's figure out where their largest energy exposure is and what number it is in their portfolio. They're taki…”
Collins: Seawolf Capital's current portfolio trades at an average P/E of three
“I think now our average P.E. Is three.”
Collins: Discretionary investors cannot beat Citadel analysts or automated quantitative machines
“Because we can't beat the machines. You cannot beat the Citadel analysts. There's 50 of them all looking at the same name and back book behind it, and it's hard to beat that.”
Vincent Daniel: Uranium and Nuclear Remain Core Investment Themes for Seawolf
“One of our favorite themes has been and continues to be uranium and nuclear.”
Collins: Seawolf holds long gold as short against US balance sheet
“One of the things that looks like a short, but isn't is our long gold position.”
Collins: Seawolf shorted First Republic, SVB, Signature, and Silvergate to zero
“We saw pretty clearly what was happening at First Republic and Silicon Valley and Signature and Silvergate, and we were short all those essentially to zero.”
Collins: US banking system won't recover until Fed cuts rates 400 bps
“Nothing's going to change until the Fed cuts rates, 400 basis points.”
Daniel: Regulated banks cannot make unsecured corporate loans due to risk weights
“Regulated banks do not want to make an unsecured loan to corporate borrowers. They're not allowed to, for the most part. The risk weights are too high.”
Collins: Ares Management is a vastly superior underwriter compared to commercial banks
“Aries just simply, they're way better underwriters than any bank out there, and they have much more flexibility, they have everything you want, and the banks are just in cement shoes.”
Collins: Seawolf bought Petrobras at 2x earnings for a 30% dividend yield
“We've been big holders of Petrobras recently, and that's one of our better stocks is that it was selling it again, one to two times earnings and giving yourself a 20 to 35% dividend yield.”
Daniel: Private equity faces valuation issues from mismarked assets
“I just feel like a lot of things are mismarked, which probably gets back to while I have a tremendous affinity for the private equity model, I think they have some issues and challenges associated with the assets they've deployed over the last two years.”
Daniel: US sovereign debt is causing significant market crowding out
“And as a result, we've built up tremendous amounts of sovereign debt, which were, I guess, manageable when rates were at zero. Well, rates are not at zero anymore. So as a result, there's a tremendous crowding out factor that is occurring right now.”
Daniel: Brazil Feeds and Fuels Itself With Cheap Equities and Fiscal Balance
“It's a country that can feed itself and fuel itself and has enough of those two commodities to export. They run a fiscal neutral position and the stocks are really cheap.”
Collins: Passive investing in fixed income is one of the stupidest ideas
“Fixed income is a little bit different, and I think I've said this many times, passive is one of the stupidest ideas ever in fixed income.”
Daniel: Multi-managers like Citadel are new shadow banks relying on Fed bailouts
“So I really, truly believe that they are the new shadow banking system, that whenever something goes awry, there's a reason why Millennium hired who they hired, why Citadel hired who they hired, to make sure that when the calamity occurs, they call the Fed for…”
Collins: Seawolf gained over 150% in 2022 despite a 30% drawdown
“Last year, we obviously were pretty decently plus 150% or a little higher than that, but we had a 30% drawdown at one point in the year.”
Daniel: Seawolf's Strategy Cannot Scale to Citadel or Millennium's Size
“Ted, I doubt it, because I don't think what we're doing here is infinitely scalable. Whereas I look at what a Millennium and Citadel have done, and I get the scale that they run at, and I think it's amazing. But the way we like to run money, we can't be big, b…”
Daniel: Tech critics hypocritically begged for SVB uninsured deposit bailouts
“But the people who got bailed out of uninsured deposits, and the ones who complained about the entire banking system in and of itself, and then were begging, and they got bailed out, that was a pet peeve of mine that drove me insane.”