Aug 5, 2021 · 1h 4m · capital-allocators
Jonathan Lewinsohn – Diameter Capital Partners (Manager Meetings, EP.05)
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In this episode of Manager Meetings, Evanston Capital's Kristen Van Gelder interviews Jonathan Lewinsohn, Co-Founder of Diameter Capital Partners, exploring credit market dynamics, portfolio agility, and the evolution of distressed debt. Lewinsohn shares insights on combining rigorous fundamental research with active trading to construct an all-weather, long/short credit platform.
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 12.6% of the talking time here. How this is scored →
Ted as informed peer 4.0 Guest teaching 4.6 Guest disagreement 1.0 Ted pushing back 0.2
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 35:30 Hedge Funds Are Not Supposed to Absorb Volatility
Jonathan pushes back against widespread hedge fund industry practices, arguing that managers claiming to be patient buy-and-hold stock pickers are failing their core mandate to actively trade volatility.
Hardest push from Ted ▶ 7:41 Ted Challenges Direct Sizing into Emerging ManagersTed presses Kristen on why Evanston opted for a sizable allocation right away rather than testing the waters with a small toehold position.
Biggest teaching moment ▶ 24:35 Demystifying the Decline of Distressed DebtJonathan explains the structural shift in credit markets, showing why document arbitrage has lost its edge and why non-recession distressed companies are almost always permanently impaired businesses.
Ted holds their own ▶ 9:29 Ted Drills into Spinout Portfolio DynamicsTed demonstrates allocator depth by grilling Kristen on how to manage relationships and potential conflicts with established parent firms when backing their spinouts.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Episode Preview: Kristen Van Gelder and Jonathan Lewinsohn | 6 | 1 | 0 | 2 | Ted probes Kristen on manager selection nuances, questioning how Evanston justified backing an unproven spin-out and how they handled position sizing and potential tension with predecessor firms. | |
| Jonathan Lewinsohn's Early Life, Law Background, and Break into Credit | 3 | 2 | 0 | 0 | Kristen opens the interview by inviting Jonathan to narrate his non-traditional career path from law school and a federal clerkship into credit investing. | |
| Career Foundations at Anchorage Capital and Downside Focus | 4 | 5 | 1 | 0 | Jonathan explains the risk management philosophy drilled into him at Anchorage, detailing how macro industry modeling combined with bottom-up cost structure analysis protected them during the auto crisis. | |
| Centerbridge Experience and the Shifting Landscape of Distressed Debt | 4 | 6 | 2 | 0 | Jonathan delivers a masterclass on the structural decline of pure distressed debt, arguing that legal document arbitrage is commoditized and that modern non-recession distressed situations represent shrinking pies with bad underlying businesses. | |
| Sponsor Message: Ridgeline AI-Native Investment Technology | 3 | 5 | 1 | 0 | After the mid-roll sponsor break, Jonathan describes the traditional hostility between fundamental analysts and fast-money traders, outlining how Diameter bridged that divide to exploit discontinuous credit liquidity. | |
| All-Weather Agility and Navigating the 2020 COVID Market Turmoil | 4 | 7 | 2 | 0 | Jonathan breaks down Diameter's early COVID pivot, rejecting the conventional hedge fund tendency to absorb volatility or chase illiquid junk, explaining their tactical shift from travel shorts to investment-grade syndications. | |
| Rigorous Research Culture, Writing Discipline, and Macro Context | 4 | 4 | 0 | 0 | Jonathan emphasizes that writing forces intellectual accountability and that micro security selection must strictly fit inside macroeconomic aggregates like personal consumption expenditure. | |
| Recruiting and Cultivating a Process-Driven Team | 4 | 6 | 2 | 0 | Jonathan explains why modern central bank intervention has truncated cycles and crippled traditional distressed debt, justifying Diameter's focus on liquid cyclical turnarounds over trapped reorganization equity. | |
| Shorting in Credit: Exploiting Micro-Cycles and Disruption | 4 | 5 | 1 | 0 | Jonathan explains why shorting credit is an essential discipline to maintain unbiased judgment, highlighting how sector micro-cycles and technological disruption reliably generate broken balance sheets. |
Statements from this episode (23)
Van Gelder: Allocators should build concentrated portfolios and avoid toehold positions
“We construct concentrated portfolios. We prefer to do all of our work upfront and gain a lot of conviction and invest in a size that really is going to matter to performance. We don't take toehold positions and see how it works over time. And, you know, we don…”
Lewinsohn: Credit investing requires legal analysis combined with macro and fundamental research
“We do a lot of things in credit that are in the shadow of the law. Right. Whether bankruptcy is coming or there's going to be litigation or what a document says, but that's not it. I also need to know what the price of oil is going to be. And I need to know wh…”
Lewinsohn: Credit investors must obsess over downside risk instead of upside return targets
“One, you have to constantly be thinking about the downside protection in what you invest in. So instead of just always looking, a lot of people say, oh, I want to invest in something I can make 20% in. But you have to obsessively say, if the macroeconomic cont…”
Lewinsohn: Tracking cyclical shifts in company narratives is critical for security selection
“Understanding investing as narrative, not just for the long term about how a company will improve, or how, you know, Amazon will go last mile and transform the way we do things. But actually, within the macroeconomic cycle, how the narrative around a company w…”
Lewinsohn: Hertz is primed to perform very well post-pandemic
“Today, Hertz is primed to do very well because they have far fewer cars and people want to travel like it's, you know, the end of the world.”
Lewinsohn: 'Good company, bad balance sheet' distressed opportunities rarely exist anymore
“And frankly, and this is part of why we do a lot more than distressed at diameter, really kind of the secular decline of the distressed debt industry. Because if you think about what makes distressed interesting is you want to buy a business that's going throu…”
Lewinsohn: Outside recessions, most distressed companies are fundamentally bad businesses
“And we think that most companies that end up in distress outside of recessions are bad businesses. And generally investing in bad businesses is not a good business for you.”
Lewinsohn: Diameter bought travel-sector distress in 2020 after sitting out 2017–2019
“And so that's why in a year like 2020, where there was sadly for the world, a lot of distressed, we got very involved in rental car companies and airlines and cruise lines. But for most of 1718, 19, we were just involved in a few situations on the sidelines an…”
Lewinsohn: Most Investment Firms Suffer Friction Between Traders and Analysts
“In most instances, traders and analysts do not like each other. Or at the very least exist with like a cold piece because the traders believe that the analysts are eggheads who want to work at a think tank and can't really make money or can't really, if they m…”
Lewinsohn: Mean-reversion trading strategies fail during rapid technological disruption
“And a lot of trading only focused businesses eventually explode on those when the reversion to the mean doesn't work, particularly now where there's so much technological change that formerly stable industries become very different in a short period of time.”
Lewinsohn: Credit Hedge Funds Mistakenly Try Playing Private Equity Turnaround
“We think that too many hedge funds who did credit thought that all of a sudden they were in private equity and they can improve businesses. We don't think that that's our skill set. Frankly, we think if we think we can improve it probably means that other peop…”
Lewinsohn: Hedge funds must trade volatility, not absorb it
“A hedge fund at its core is not supposed to absorb volatility. It's supposed to be able to trade volatility and make money even in periods of volatility.”
Lewinsohn: Chasing illiquid yield in frothy markets destroys portfolio flexibility
“When markets get very frothy, illiquids become in vogue, and they end up not returning a lot. If all of a sudden you're being pitched a lot of nine percent illiquids, you maybe really want to realize that you're creating a situation where if the world changes,…”
Lewinsohn: Buying low-quality distressed debt early in market sell-offs is a mistake
“Our view is at the beginning of a sell off, the worst thing you could do is buy the lowest dollar price, crappiest companies. If you were a company that traded, let's say you were an oil company that was trading at 75 in January of 2020 and was trading at 25 i…”
Lewinsohn: Fed actions created the first syndicated rescue market in 2020
“Instead you had the first ever syndicated rescue market where thanks to the fed banks brought rescue deals for companies to sell to mutual funds and hedge funds.”
Lewinsohn: Writing forces investors to cite sources and eliminates cognitive biases
“Writing is a very helpful thing to boil down very complicated things to yourself and to prove to yourself that you're right. Because when you write, you usually need sources. How do I know this? Where do I know this from? And in that COVID blog, we had links t…”
Lewinsohn: Central bank intervention shortens distressed debt cycles
“Now I think people who work at central banks want to avoid recessions really at all costs. And that means they throw everything at it to avoid it. And when we're in it, we just saw unprecedented act after unprecedented act. So cycles are short. So you're not g…”
Lewinsohn: Public markets heavily penalize illiquid post-bankruptcy reorganized equities
“There's really nothing worse to public equity markets than a reorganized equity that's less liquid than a regular equity that just went through bankruptcy and is a value stock.”
Diameter bought Claire's senior secured debt at 50 cents on dollar in 2017
“In retail, we invested in Claire's stores, which we really liked the fact that even though mall traffic was down a lot, we were able to buy Claire's senior secure debt at 50 cents on the dollar in 2017.”
Diameter allocated mid-thirties percent of flagship fund to distressed debt during COVID peak
“We've had in the mid thirties percent of the book in the main fund during the peak of COVID in distressed, but we could have more than that and then add another 30 to 40% of the book in stressed.”
Lewinsohn: Corporate CEOs have inherent long bias that limits forecasting objectivity
“If I want to know maybe about auto technology, obviously she's the one to talk to, but she's long. That's the only way. And that creates a bias because if you own a company, if you manage a company, you think it's going to do well.”
Lewinsohn: Diameter views short positions as profit centers, not hedges
“And so our portfolio, we don't really think about shorts as hedges. We think about them as ways to make money in companies that no longer make money the way they used to.”
Lewinsohn: Public sentiment polls are completely irrelevant for investment decisions
“And what it really impacted for me is polls are not really relevant. In COVID, for example, we'd get all these polls, oh, people can't wait to return to cruises, or people are not going to go back to the office. I didn't pay attention to it at all.”