Jul 2, 2018 · 56m · capital-allocators
Peter Troob – Monkey Business in High Yield (Capital Allocators, EP.59)
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In this episode of Capital Allocators, host Ted Seides interviews Peter Troob, co-founder and CIO of Troob Capital Management and co-author of 'Monkey Business,' exploring credit cycle fragility, the structural divide between distressed mega-funds and niche direct lending, and foundational lessons in firm culture and family office management.
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 23% of the talking time here. How this is scored →
Ted as informed peer 5.0 Guest teaching 4.7 Guest disagreement 2.3 Ted pushing back 1.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 21:31 Peter rejects the premise of private equity saving bondholders
Peter directly counters Ted's assumption that PE sponsors will support bonds with equity war chests, laying out how sponsors ruthlessly strip assets and subordinate existing debt.
Hardest push from Ted ▶ 19:09 Ted presses Peter on market timing and the lack of covenantsTed challenges Peter's short credit thesis using Chuck Prince's analogy, asking how one manages timing when the economy is strong, covenants are nonexistent, and credit markets are robust.
Biggest teaching moment ▶ 11:32 Peter breaks down the illusion of middle-market distressed investingPeter systematically educates listeners and allocators on how non-control middle-market distressed funds are just riding in mega-funds' wakes without genuine structural control.
Ted holds their own ▶ 21:04 Ted frames PE war chest option value in distressed cyclesTed draws on historical post-2008 sponsor behavior to formulate a precise, informed question regarding private equity's vested interest in keeping equity option value alive.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Wall Street Origins and Authoring 'Monkey Business' | 4 | 2 | 1 | 0 | Ted prompts Peter to share his early career transition from investment banking to writing 'Monkey Business' and moving into hedge funds. Peter provides an open, humorous narrative of his disillusionment with banking. The dynamic is collaborative and conversational. | |
| Early Credit Investing Lessons and Capital Advantages | 5 | 5 | 2 | 1 | Ted probes early credit mistakes and asks if large players hold enduring duration advantages in distressed investing. Peter explains how well-capitalized funds can wait out smaller investors in bankruptcies, demonstrating the institutionalization of the asset class. | |
| Distressed Sizing Dynamics: Mega-Funds vs. Sub-$20M Niches | 6 | 6 | 3 | 2 | Ted runs through fund math and asks where the middle market distressed inflection point lies. Peter firmly argues that middle-market participants without control are merely riding in big players' streams, schooling allocators on why sub-$20M niches or mega-funds are the only viable paths. | |
| High Yield Fragility, Convexity, and Portfolio Hedging | 6 | 5 | 4 | 3 | Ted invokes Chuck Prince's dancing analogy to challenge Peter on the timing and viability of shorting tight credit markets. Peter counters forcefully that carrying an unhedged book in asymmetric, negative-convexity debt is picking up pennies in front of a steamroller. | |
| Private Equity Sponsor Tactics and CDS Market Dynamics | 6 | 6 | 4 | 2 | Ted suggests PE war chests might protect bondholders through equity injections. Peter corrects this assumption directly, explaining how sponsors strategically subordinate unsecured bonds and exploit loose covenants like restricted payment baskets (citing J.Crew). | |
| Industry Overcrowding and ETF Product Replication | 5 | 4 | 2 | 1 | Ted inquires about industry convergence among mega-funds and whether synthetic ETF replication acts as a free rider. Peter agrees that distressed has become institutionalized and homogenous at the top level. | |
| Sponsor Message: Ridgeline Cloud Tech | 5 | 5 | 2 | 1 | After the sponsor break, Ted brings up the liquidity mismatch risk in high yield and loan ETFs. Peter explains the mechanical risks of ETF unit redemptions during sell-offs and highlights settlement settlement lag in bank loans versus instant intraday ETF trading. | |
| Direct Lending Strategies and Family Office Asset Allocation | 5 | 5 | 2 | 1 | Ted asks about Peter's direct lending sourcing and asset allocation for his family office. Peter details the power of saying no to shopped deals, prioritizing bespoke needs, and maintaining 30% liquidity rather than paying fees for large-cap equity hedge funds. | |
| Team Culture, Leadership Philosophy, and Generational Dynamics | 4 | 4 | 1 | 0 | Ted asks about team management, decision-making, and millennial work dynamics. Peter reflects on flat team hierarchy, listening to junior staff's specialized insights, and leading through empowerment rather than fear. | |
| The Hazard of Minority Positions in Distressed Investments | 5 | 6 | 3 | 1 | Ted asks about major mistakes and their lessons. Peter recounts being the third-largest creditor in a deal where a larger holder blocked an exit due to greed, teaching him never to hold non-control positions without structural protections. | |
| Exploiting Inefficiencies in Venture Debt and Small-Cap Financing | 5 | 5 | 2 | 1 | Ted asks what keeps Peter motivated and how he prices risk in small niches. Peter explains structured revenue-based financing in venture debt and sub-$15M voids left open by bank regulations. | |
| Partnership with Brother and Multi-Generational Business Roots | 4 | 3 | 1 | 0 | Ted closes with questions about working alongside Peter's brother and multi-generational family entrepreneurial origins. Peter shares personal anecdotes about family history and business legacy. |
Statements from this episode (21)
Junior Investment Bankers Toil in Obscurity for $15 an Hour
“For a young investment banker, which I was at the time, it's really just about a coming of age of realizing that the emperor has no clothes, Realizing that you're toiling in obscurity, probably for less than 15 dollars an hour, even though you thought you were…”
Mega Distressed Funds Outcompete Smaller Players via Capital Duration
“The very large players, I mean, the ones with north of 10, twenty billion, even bigger than that, they just have longer term assets, they can make structurally interesting decisions, and they can both wait you out and buy you out in, like, rights offerings whe…”
Distressed Debt Investors Must Target Sub-$20M Deals for Deal Control
“The large guys have a big advantage right now. They really get the look at a better deals, and they get to structure them themselves. You have to go pretty far down the curve, maybe sub-twenty, sub-fifteen million dollar kind of investments where they don't ca…”
Passive Distressed Debt Investors Underperform Lead Investors by 500 Bps
“I think any one year can come out differently, but I think over time you're going to get high single, low double digit returns out of the control leader, and you're going to get 500 basis points worse out of the other guys over time, because what they'll get c…”
The $1.2 Trillion High-Yield Bond Market Is Five Times Levered
“What you have is a massive market, about 1.2 trillion of bonds in the high yield market, half of which Are double B and half of which are below double B. That is weak. It's five times levered. And you have a market that's very vulnerable.”
High-Yield Bonds Are Like Pennies in Front of a Steamroller
“So the question is, picking up three, four, five, six percent in high yield from today forward, it's like picking up pennies in front of a steamroller. Is it worth it? That's the question. And my answer to that is no.”
Illiquid Structured Bonds Only Avoid Drawdowns Because They Escape Marking
“This idea that you invest in non-liquid structured product bonds, and say, but look at those, they never go down. They don't go down because they never get marked. It's not that they don't go down because they don't go down. That's a fool's game that will get …”
PE Sponsors Will Not Subordinate Equity to Save Distressed Bondholders
“So they will be economic animals. They will look for the best return for the reward of what, for the risk they're taking, and there is no reason why they come in and just subordinate themselves to bonds and save the bond market.”
PE Sponsors Strip Distressed Bondholder Collateral via Restricted Payment Baskets
“What, I mean, you can see it in what they did with J.Crew, where they can, and now they're, I think they might be doing it in PetSmart as well, where they're able to have a restricted payment basket, move parts of companies out, and the bond guys get held, sit…”
Troob Exits Credit Positions When Mega-Fund CDS Manipulation Battles Emerge
“I've smelled it in a couple things I've been in. I get out of the game. I will get run over. I can't play that game. It's, I'm not nearly big enough to deal with it, and so what I do is I just allow the big guys to beat each other up, which they're doing, and …”
Apollo, KKR, and Oaktree Lack Meaningful Differentiation in Distressed Debt
“Is Apollo and KKR and Oak Tree, what's the difference? And the answer is, there's not a lot of a difference.”
Distressed Debt Returns Will Remain Muted Without a Systemic Shock
“So you either have to have a monster shock to the system, which I'm not sure anyone foresees, or you're gonna find that distressed returns are muted because of the amount of money, until money starts coming out.”
High-Yield ETFs Act as Marginal Price Setters in Credit Markets
“I mean, they are the proverbial tail that wags the dog. They are the marginal price setter. Every day, every quarter, every month, you see it. Flows are in, flows are out.”
High-Yield ETFs Will Suffer Severe Price Gapping During Massive Sell-Offs
“When you start having that problem, you'll just see gapping. It will eventually happen. It'll work itself through. The ETF will then get smarter and better the next time around, but you'll have to live through that,”
In Brokered Investment Deals, Lacking the Last Look Means No Look
“Once you get into a brokered situation, it's not that it's bad, but if you don't get the last look, effectively in my world, I think of you get no look. It's like the Ricky Bobby quote, right? If you're not your first, you're last. Right. And the problem is th…”
Troob Targets 30% Portfolio Liquidity to Buy Assets During Downturns
“I want probably 30% liquid, because I always believe there is something around the corner. And I want to be the guy who buys and doesn't have to sell because I could get myself into the same problem as anyone else.”
Paying Hedge Fund Fees for Mega-Cap Tech Stocks Is Not Valuable
“And I know this is not the greatest thing to say, but being in the hedge fund business for all these years, it's interesting how few hedge funds I give money to. And it's not because I don't want to. It's that the market's gotten more efficient. There's a lot …”
Revenue-Based Venture Lending Generates Nearly 30% IRR Over Two Years
“And what we're finding now out in the venture capital world is they will take a million dollars, let's call it 2,000,002 million dollars, and give you one and a half times your money, three million, back in two years, paying you monthly off of revenue stream. …”
Banking Regulations Create a Void in Sub-$15M Growth Financing
“Because of regulation, and because of the way the regional banks and the community banks have to deal with regulation, there is a Real void of when companies, entities need money, again, in the sub-fifteen million dollar space, and nobody really cares. A compa…”