The Exchanges

Q Family offices now are a big, big thing. Back then, the Bass's were one of the few big ones. What was that experience like?

A Back then, they were gods, mainly because they were the only people who had money. And I worked at a firm accounting company where I was running the, the stress group. A lot of what we were doing, because we didn't have a lot of capital, we had about fifty million of capital. My boss, a gentleman by name, Joe Calhoun, was super close to one of the traders at the Bass family. So they were buying everything, they were the overage on everything we were doing, and they were making a fortune of money. I mean, we were up our first year 70%. So 70% on fifty million is Thirty-five million dollars on five hundred million, which is what they were doing. It was a lot of money. And the following year, we were up 60%. So, made them a ton of money. I think they were paying us a point, because everything we were buying, Cowan just had a hundred million of capital. They became our biggest client. And because of that, came to us and said, Hey, we'll give you one hundred and fifty million to invest in distress. So this is in 1988. I know people find this hard to believe. In 1988, we were the largest distress fund in the world with one hundred and fifty million dollars.

AI assessment note: “Back then, they were gods, mainly because they were the only people who had money.”

Q So those types of returns that were available a long time ago clearly haven't been for a long time in the markets. What was it like when you were in the seat where you could do the activities you were doing and make those kinds of returns?

A You had less competition, and the only way you can make those returns is back then, I think we both felt we knew everything, and what I mean by that is we would invest in one, two, or three names a year. You don't do that today. You don't take a hundred percent of your capital and invest it in a couple names. So when we did this, Sonya and I felt pretty strongly that we understood the bankruptcy process. We understood how claims were being bought and sold. We understood what was happening with the bonds. And you'd fly out there, and you'd go to the bankruptcy court. This is before the internet. So you actually would see everything happening. It was filed, and you'd read, and you'd talk to the lawyers, and that was a huge edge. Because people would wait till it got mailed to them, or FedEx, or there was this thing called fax. They would get faxed, but you know, the fax would be a day later. So you actually had a huge edge. You just waited for it to get filed. And I think for Sonia and I, we invested our capital. We took a lot of risks. It worked out really well. And as the capital got bigger and bigger, you got more and more nervous about what you were doing.

AI assessment note: “You had less competition, and the only way you can make those returns is”

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A You either got to get paid more or you've got to take less risk. So if I'm making you 10% in the U.S. and then I make you 10% in Europe and 10% in Asia. Ok, so that's all good. Other than the fact that I would tell you 10% in the U.S. is less risky than 10% in Europe and 10% in Asia. So what's the spread? What should you get paid? For investing in Asia. I always think it should be 500 basis points more. Europe should be two to 300 basis points more. Right? US is just more liquid. So, when we look around the world, we want to make sure we're getting paid for that extra risk. And then sometimes, and this is the part people don't fully appreciate, the perception of risk in other parts of the world is very high, whereas the actual risk is actually lower. And what I mean by that is you have a bankruptcy system here in the U.S. So if I said to you, I'm investing in the U.S. or in Europe, you would say to me, well, great, U.S. is safer. I would say to you, that's true, unless you're investing in the U.K. Because the U.K., the legal system there, is actually stronger than it is in the U.S. But if I'm investing in Italy, you've got issues if you're investing in Greece. But the perception is that You are taking more risk, and I would tell you that in the UK and Ireland, you're taking less risk. Same thing in Asia. In Asia, everybody's nervous about Asia, and I would totally agree, but if…

AI assessment note: “invest in jurisdictions where the perception is high, but the actual risk is low.”

Q How'd you find your way into the business world?

A I'm a big, big believer that you got to work exceptionally hard. The harder you work, the luckier you get. I know that's not the mantra today, but I was working 18 hour days. I got married in law school, and we had a baby, and one of the things, I got involved in a bankruptcy, which was the Lionel bankruptcy, Lionel trains, and there was a firm, R.D. Smith, that was buying up claims, and I didn't understand really what was going on in the sense of, They were paying 20 cents for claims, and under the plan of reorganization, we were paying them 60 cents for cash and 20 cents in stock. I was responsible. I'd see all the claims purchases. I'd have it to file everything with the court, and I'm calling the people up who are selling, saying, what are you doing? You're getting 60 cents. Don't sell. Now, this company's a bankruptcy. It's not worth anything. I know, but you're getting it in six months. We filed the plan. And back then, bankruptcy, if you file for bankruptcy, this is 40 years ago, people thought it was liquidation. So I thought it was fascinating. At the end of the bankruptcy, I went to the people at R.D. Smith and asked if I could go work for them. And I said, I'll come in as a lawyer, and they said sure. And I went and I did that, and very quickly I got involved on the investment side.

AI assessment note: “I went to the people at R.D. Smith and asked if I could go work”

Q So now that whatever that distraction may or may not have been as in the past, what does Avenue look like today?

A Avenue looks the same, I think, than it did five, 10 years ago. We focus on private credit throughout the world, and we're managing around twelve billion. We found a sweet spot that when the cycle comes back, we'll end up raising more, and when the cycle, right now is a great time for us. You're overwhelmed by investment opportunities. I think we're gonna go do a sports fund, mainly because I think I learned quite a bit about investing in sports and understanding sports that I don't think others know. So, I think for us, you'll see us keep doing what we're doing, which is staying at the top of the capital structure and trying to generate equity returns by buying senior debt. Today, you can make loans at 12 to 15%, because nobody else is making them, and you're senior and you're secured, but I don't think private equity over the next three years is gonna make you 15, 20%, and if it does, that's great, But if I'm making you 15 senior secured, I would argue the spread between what we make and what private equity makes should be much, much higher. So today, because of where rates are and the lack of what's happening with banks, structurally banks are pulling back, which means that firms like ours that are providing capital can charge more. That wasn't the case two years ago. Two years ago, Banks had a zero cost of capital, so they're lending at two to five percent, and you could ne…

AI assessment note: “Avenue looks the same, I think, than it did five, 10 years ago.”

Q What was the most challenging moment of your career?

A No, I think, 2008. We were down about 25% that year, and you were losing billions of dollars, and you had to keep believing you were right, and it was hard, and I think you questioned yourself quite a bit, was at that time, should you sell everything and go into cash or buy more? And yeah, everybody tells you, oh, when something goes down, you should double down, you should buy more, Be tough. And it's really, really hard in the face of everybody telling you you're wrong to keep on believing that you're right. And, you know, I questioned a lot of the things I was doing because I was constantly being told I was wrong. Not by people, by the market. You'd buy something at 60 and a month later it was 50. You'd buy it at 50 and a month later it was 40. Things that We were buying things all the way down to 10 or 20. In the beginning, it's easier, as it kept happening and happening, you are questioning your thesis on everything, you're doing more work, and you keep coming to the same solutions, so are you looking at the world the wrong way? Are you missing things? Because everybody else seems to be right, like whoever sold was right. And it took about a year. I mean, in That was a dark year. I think I lost 10, 15 pounds. You just, you're not eating, you're focused, trying to redo the work, and it was just hard.

AI assessment note: “I think, 2008. We were down about 25% that year”

Q That returning to capital, certainly around the financial crisis, that was a big one. What if you found people actually remember?

A I don't think they remember it, to be honest with you. I think people remembered it for the first two years, but then what ends up happening is the people who kept the money and kept on growing morphed into asset managers. And I think for us, we thought, look, what we're going to be is investors. And as time went by, doing the right thing was forgotten, and what was focused on was, okay, well, what are you doing for me today? And I think that's where the business has changed. It's not that people aren't partners today anymore. I think everybody's under large pressure to produce. If you're a pension plan, if you're a family office, And I would think today, what people are very focused on is, okay, how have you done? And if you haven't done a good job, I would tell you today, people move on. And I have no qualms with that, but I think that's what's changed.

AI assessment note: “I don't think they remember it, to be honest with you.”

Q What were some of the other milestones between then and today?

A I think bought the bucks in 2013, and that investment turned out to be the best investment I think I've ever done, but at the time, it didn't feel that way, because I bought the team, we paid a hundred times, and on the investment world, that seems high, because you would never do that, and had to learn a whole new business, which was that if you want to own a professional team, There were two metrics. As long as you made one to two percent a year, actually that was fine, because the fun factor outweighed everything, and that you had to try and win, and try to win a championship. Instead of thinking you bought a team, you became a steward of a team. When you're a fan, all you do is yell and scream as to why somebody isn't doing what they're supposed to do, and when you're the owner, you find yourself, yes, I own the team at this moment in time, but really, I'm a steward of this team, and you actually take that pretty seriously, and you try to constantly do the right thing. I think for us, we built a new stadium in Milwaukee. We built a new practice facility. We did all these things, And then we brought a championship, which obviously is the ultimate goal, and then you realize that the reason you were able to win a championship is you're really, really good, and then you're also really, really lucky. You just are, and that it's the same thing, I think, in life. You see it. There…

AI assessment note: “I think bought the bucks in 2013... we built a new stadium in Milwaukee.”

Q I'd love to ask you about navigating Asia with the changes in the geopolitical landscape the last couple years. You've been there for a long time. What's changed? What's similar in how you're going about investing?

A It's changed a lot, and it's a great question because Five years ago, we were comfortable investing in China. Today, we're not. The legal system hasn't changed. It's the geopolitical situation that's there, and what I mean by that is before you believed that at the end of the day, you would be treated fairly. Today, you can find yourself caught in the geopolitical war and find yourself With your asset being taken away, and look, and that happened to us in Russia. We have an aviation fund that invests, and we own four planes. Those planes, at the time of the Ukraine war, were taking passengers from Turkey to Moscow. When sanctions came down, Moscow grounded those planes, and we found, all of a sudden, Four of our assets, we couldn't recover. They wouldn't let the planes fly out. You know, so you find yourself in all these situations. You now are focused more on your geopolitical issues. Would I invest in China today? No. Would I invest in Hong Kong? Yes. And do I want a higher return for that? Yes. But the thing that people miss, by the way, is you actually want to be investing in Asia for one simple reason. If the driving force in Asia is China, And that driving force is growing by five percent a year. Do you think that's beneficial for the region? Yes. But people look at your question, geopolitical, yes, so don't invest in China. Invest in the region, because the region's grow…

AI assessment note: “Five years ago, we were comfortable investing in China. Today, we're not.”

Q How did some of the lessons you learned from the Bucks translate over to how you think about investing?

A I would tell you it was more of the lessons I learned on investing that translated to the box. The biggest decision you have to make when you own a team is talent went out, or this team went out. Same thing in your organization. You can hire a super talented portfolio manager who is the most difficult person in the world, but he's a moneymaker, and that moneymaker just makes everybody else's life miserable. We've all, I think, dealt with that in our lives of someone who will make money, but you don't want to be around. Basketball and sports, same thing. Someone who's super talented, but makes life difficult for his teammates. So the NBA, football, baseball, it's always about, do you want talent, or do you want to build a team?

AI assessment note: “more of the lessons I learned on investing that translated to the box”

Q From your experience over the last decade with the team, you start off saying you knew your investors weren't going to be happy. How should people think about when one of their managers takes on, it doesn't have to be a sports team, but something that's clearly different profile, potential distraction?

A I'll tell you what I told investors. I was pretty upfront about it. Yes, it's going to take some time. I don't think it's going to affect what we're doing on the investment side at all. I'm biased. Obviously, I believe that, but you're going to see the results. If you see that we're not doing well, then you're not going to re-up. If we are doing well, you will re-up. So the reason everybody focused on is because it was very public. But nobody would know if I ended up leaving the office at five and playing tennis for seven hours a day, or if I went to, I love playing chess, so if I went to play chess, it's a public thing, so people see it. And I tried to explain to people, I'm not taking on another full-time job. What I'm doing is we're making an investment. There's a whole process. Yes, I'm going to be involved. And tell you, I got more involved in the bucks, but I think what investors saw is didn't have an impact, and we actually were performing better, so nobody really worried about it.

AI assessment note: “you're going to see the results. If you see that we're not doing well”

Q Curious to ask about the crossover of buying the bucks, owning the bucks, and the business. And the first aspect of that is when you bought the team, what was the reaction of your investors at Avenue?

A They weren't happy, I would tell you. People thought it was going to be a distraction. I think today, it's a norm. Back then, we were one of the first people to buy a team that was involved on the private equity side. Investors were very focused on how much time are you going to spend on that. I tried to explain that it's not, you hire a GM, you hire a coach. Really, the general manager does quite a bit, and The only thing you're really doing is general manager says, I want to spend X amount of money. I want to get this player. And you would say either yes or no. And so a lot of things our GM wanted to do, we would say no to. A lot of things we wanted to do, the GM would tell us that didn't make sense. And you develop an understanding. I think you need to learn basketball. You think you know it, but there's a business to it. The thing I could never understand, and I still don't, is you would think, because you come from a finance background, alright, you pay somebody two million dollars, and then you pay somebody ten million dollars. Is the guy you're paying ten million dollars five times better than the guy you paid two million dollars? That seems the math. And that was never the answer. It wasn't like he was twice as good. Yeah, he's better. Okay, then why are we paying him 10? If he's better, we should pay him three. No, that's not how it works, but why? And so, what I quick…

AI assessment note: “They weren't happy, I would tell you. People thought it was going to be a distraction.”

Q With this recent closing of your sale of the bucks, you now have a windfall of capital, and I'm curious as you're looking out at opportunities, what's most exciting you for your own capital?

A I made a huge mistake when I bought the bucks that I put the team in my kid's name. And at the time I thought it made a lot of sense. And I did, and obviously I did it because I thought the value of the team would double over time. And here was a great estate tax way of trying to transfer money to your children. I didn't realize it would go up so much. So now my kids have a tremendous amount of money. So what I'm trying to do is convince them to invest in the things I'm doing. And right now they're explaining to me that they love treasuries and there's no risk. So I think you've got These huge opportunities out there. I do think sports is a asset class that's gonna really grow, so I wanna do that. I think opportunities in Europe today are pretty large, just simply because you're getting overpaid for the risk. I think Asia's the same thing. I think what we're doing in the U.S. in different areas, whether we're doing it, we're lending money on the real estate side. It's really hard money lending. You're getting overpaid for that, what we're doing on the venture debt. So there's a lot of different places where you can make money today, and it's all for the same reason, that banks are pulling back. I don't mind competing against Oak Tree. Their cost of capital is the same as mine. I'll find deals they don't. They'll find deals I won't. But if I'm competing against banks, that's dif…

AI assessment note: “I do think sports is a asset class that's gonna really grow”

Q Along the way, there are always opportunities to look at adjacencies to what your core expertise is. I'm curious, what are some of the ones you've adopted, and what are some of the ones that you've stayed away from?

A It's a great question. I think we've come to the conclusion to go and do those, you need to have a team that's got the experience in that sector. Let's not us go do it. So we started a venture debt group. Because the folks who used to work at Hercules were leaving, and they came over, and we hired all three guys and raised a fund around that, and that fund's done great, mainly because the people we brought in are super talented, and I think you need to have that. When we started Europe, we hired the head of Europe at one of the largest firms to come over to Avenue, and he built out the team. I think you have higher teams. Yeah, you could do one-offs, but you're going to be really, really small. What you're talking about is building a business, and building a business is hard, so you've got to make sure you've got the right guys, the right women, and they fit the culture of your firm. I think some that we've tried have not worked out, and then some that we have have worked out, so yeah, it's hard.

AI assessment note: “So we started a venture debt group... When we started Europe, we hired”

Q What did you have to evolve into when you went from ten million into the hundreds of three trades a year into managing twenty five billion dollars?

A It was a challenge. I mean, obviously, no, you grow your team. You hire more people. I think we were very lucky and built a talented group of people. And look, and the other way you grow, obviously, is you have to have returns. Nobody's giving you money because you're losing. They're giving you money because you're doing well. So I focused on the investment side. Sonia focused on managing the firm. On legal, on compliance, and all the different things, and I do think the reason you grow is you have to do well on both. I think the problems people have as they're growing is they're not doing a great job of managing the firm. They're focused on the investment side, but then all these other issues come up, and I think for us, it turned out to be a great partnership in that I could focus on the investment side, and Sonia could focus on managing and running the firm. Both of us were happy with what the other one was doing, so we just took a huge weight off on your shoulders, and The partnership turned out, and still has, turned out to be great. Sonia and I were able to hire the right people, people who became our partners, who ran Asia, who ran Europe, who ran the US, and the firm grew pretty large, until by 2011, It's kind of funny. We returned half the money, and we made this big decision to get back half the money because we thought there was just less and less distress, right? Yo…

AI assessment note: “I focused on the investment side. Sonia focused on managing the firm.”

Q How has playing chess impacted how you think and how you invest?

A You think too much. The problem with chess is you've got to think four or five, 10 moves ahead. So I played competitive chess and I found that really helpful in life. It's good and it's bad because you're trying to always figure out all the different things that can happen and then you start applying probabilities To that. Whereas I don't think most people do that. I think most people just, they'll go to the first iteration or the second iteration. I'm going to the fifth, to the seventh, to the 10th, and I think it's annoying for people, but I think it's been helpful. I think it's great for business. I think for life it's good, but sometimes it makes you think too much, and sometimes you shouldn't think as much and should enjoy What you're doing. But we all have personality defects. We all have issues. I always get asked, why am I still working? I have a friend. I'll give him a shout out. His name is Danny. He made quite a bit of money and stopped working at 40. And I've made quite a bit of money, and I'm still working. He'll ask, what the hell's wrong with you? Why are you still working? I don't even remotely understand how you could have stopped. I go, you're busy doing absolutely nothing. And he goes, yes, but at least I'm busy. And he goes, you're busy doing something, and he goes, wouldn't you rather be doing nothing? That's why he said it's a personality defect. I'm worki…

AI assessment note: “you're trying to always figure out all the different things that can happen”