The Exchanges

Q How do you think about the media assets? You mentioned that you had bought those when you started up Eldridge.

A A lot of it's like rights trading. You think about the value of meteorites, and the Dodgers transaction was a perfect one in that regard, where we bought the team in 2012. In 2013, those meteorites were coming up for sale. So what you would have been able to pay in 2014 would have been very different than what you would have been able to pay in 2012. Because if you bought the Dodgers after those meteorite deals were done, And the previous owner kept those media rights, then you wouldn't have gotten that value. Ultimately, we did a lot of work on what's the value in broadcasting the game to five million homes. What is that worth? And ultimately, we came to a conclusion that we were very able to pay two billion dollars, because those media rights were effectively an investment grade bond, because you're going to get the offtake from an example, CBS, Fox, Time Warner, all of those parties were interested in broadcasting the game, and all of them were Investment grade counterparties that we're going to give you a long-term contract to broadcast the media rights, so that's a derivative. So when we're looking at Dick Clark, Dick Clark has the similar type of thing. It's got long-term licensing agreements with NBC for the Golden Globes, with NBC for billboards, with ABC for New Year's Rocking Eve, but ultimately, you know what the license fee is going to be that's coming from Whether …

AI assessment note: “those media rights were effectively an investment grade bond”

Q So just as a sense of scale, how big had that credit business and all the things around it gotten at Guggenheim?

A It was over 50,000,000,060 billion of assets or thereabouts. But before I left Guggenheim, I was also the head of the asset management business. So now in what we had built was A much broader asset management business at Cuggenheim. The non-investment grade credit business was one leg of the business, but we had a very large investment grade business. We had a very large structured credit business, and we made a couple acquisitions. So we acquired something called Claymore, which had ETFs and closed end funds. And then we acquired RideX, and we did that in 2010. RideX was owned by Security Benefit, which was an insurance company that needed capital. We were able to bribe the capital, and then we separated RideX and Security Benefit, and we rolled RideX into our Claymore Guggenheim asset management business, which then gave us a mutual fund business. And then we launched mutual funds at Guggenheim Which today they represent probably fifty billion of AUM is in our six flagship mutual funds that we started at Guggenheim around 2011, 2012.

AI assessment note: “It was over 50,000,000,060 billion of assets or thereabouts.”

Q So much of what you're describing, this common stream, you can hearken back to the credit world. I'm curious, in this world where there's so much interest in technology and growth assets, how are you thinking about all the developments of technology in your investments?

A It's a great question. We've been very active in tech, and the reason that we got active was because we decided that we didn't want to be afraid. And I'm not a technology investor by background, but we have a lot of companies and those companies have a lot of challenges. And a lot of those challenges are going to get solved by tech. So really we took out the view of, okay, we have these companies, we think about them as laboratories. What are the right laboratories that we're already in? What are the right solutions that are tech enabled? So for example, the very first tech investment we made was something called replay technologies. And replay technologies, it's, if you watch home plate, or if you watch the basketball, or if you watch now football, and they give you 360 degree views, that was a technology that we invented at Dodger Stadium. So we had nine cameras that were installed at Dodger Stadium, and that gave the ability to construct a 360 degree view around home plate. So ultimately, we thought that was a cool capability. So we figured, all right, we'll put a little bit of money in. We'll give Dodger Stadium as the platform. So Dodger Stadium and the Dodgers ended up benefiting from that. So then we ended up selling that to Intel, and Intel ended up then commercializing it with all the leaks. But if I had thought about it from a point of view of, does this technology wo…

AI assessment note: “we have these companies, we think about them as laboratories.”

Q Which two people have had the biggest impact on your professional life?

A So for me, that's really easy. Mark Walter, CEO of Guggenheim, and Mike Milken. I had the great fortune of being close to both of them for a very long time, and the knowledge that I've got from them, the fact that they really told me the truth. I remember one day asking Mark, like, well, I want certainty, and Mark ripped my head off and was like, what are you talking about certainty? There's no such thing as certainty. And then having the benefit of speaking to Mike about capital structure and business and industry and perspective and history and all the stuff that he's seen and dealt with. Both of those experiences with both of them have been very memorable.

AI assessment note: “Mark Walter, CEO of Guggenheim, and Mike Milken.”

Q How did you decide what structure to put on Eldridge?

A Well, I knew I wanted a holding company that was permanent. I was able to find an investor who the two of us basically were able to form Eldridge and have the combination of assets and cash that came in, you know, at time zero when we formed it was the billions of dollars. So that gave us a really good flywheel that was spinning. And ultimately I knew that if I could continue to grow our insurance business and our insurance business needed its assets managed, that we could be building companies in partnership with our insurance company and have rates of return generated in two places. We could get rate of return at the insurance company itself for the asset management activity. And then in Something like CBAM, for example, we started that from scratch. Eldridge put in twenty million dollars to get it up and running, and Security Benefit became a very large client. So immediately CBAM had value, given the fact that it had equity capital and a very large client, and ultimately, I think we'll, we'll be able to show that we're going to create massive amounts of value on the back of the fact that you had these two constituencies, both that are getting their needs serviced, By having managers that you can control. So if things aren't going right, it's really easy to shut it down, go into runoff. But if things are going right, then you continue to play into the probabilities and feed …

AI assessment note: “I knew I wanted a holding company that was permanent.”

Q So, 20 years ago, structured credit was relatively nascent. You're talking about CBOs. Most people think of them as CDOs today, but then it was bonds as opposed to just debt. What did you learn from your experience early on in the structured credit world that carried through to everything you did since?

A Well, you started really learning how finance companies worked. And to me, a CLO or a CBO or a CDO Is really a bank with a limited life. I think you really learn quickly that credit is the most important thing. And I think credit is kind of a fundamental tenant and all things capital markets and finance. So by being able to really go deep on credit and learn about what Really drove performance. That gave me a real insight, and it was also great because when you're lending money, it's almost like dating. You can break up easily when you get paid off, but you also have a front row seat to understanding businesses, industries, management teams in a lower risk way than if you're at the bottom of the capital structure.

AI assessment note: “being able to really go deep on credit and learn about what Really drove performance.”

Q I had Matt Brown on the show a couple of weeks ago. I know that's one of the recent deals you've done, and I'd love to just take the lens of the way you think about businesses and say, what was it that interested you and your thesis and investing in case?

A So I think Matt's got an unbelievable opportunity. I think if you look at distribution and demand for alternative assets, he's got a opportunity to transition from a legacy business to a fintech platform. And of course, if you can think about the value creation that goes from being a distribution business into a fintech platform, that's got distribution, he's offering Alternative asset managers access into the registered investment advisor community. So to be able to take out all of the complexity, but to be able to go to whoever the name is and say, you have this massive registered investment advisor universe that is short alternatives and is looking for places to create, you know, because there is no fixed income investment grade business anymore. So if you look at where the investment grade bond market is today, two and a half, three and a half, what is it, right? Triple C's are trading at four and a half or five. So you think about that as a fixed income asset class, there's no yield in that anymore. Therefore, people are going to have to go find yield, and the place that they're going to go is in alternative asset management. Matt is the gateway. So he connects the alternative asset manager who has the know-how with the registered investment advisor who has the demand. So if we can do that in a really elegant, streamlined fashion, and he's launched Case IQ, which is going …

AI assessment note: “he connects the alternative asset manager who has the know-how with the registered investment advisor”

Q So what is that vision for what you wanted to do at Eldridge?

A Early on, it was, let's build a company that can have a very broad perspective on what it invests in and ultimately leverage all the experience that we got across industries. You always want to be looking for places where it's less competitive versus others. And to me, starting businesses from scratch, growing them on the ground floor, when prices are really high, it's cheaper to start a business. And from prices are less high, it might be cheaper and less timely to buy a business. So you have to continuously be looking at that continuum. So we're constantly buying businesses and starting businesses here. And that flexibility really allows us to capture what we think are the best opportunities because our mandate is different than an asset managers. Our mandate is to continuously find places where you think your unit of return exceeds the unit of risk. To me, this is all just probabilities. And ultimately I want to be having the broadest lens to be able to play in And then of course you continuously get better and better and better because you get management teams that you're attached to that help you navigate different markets. So now we have over 80 companies that we've invested in, and that means I have 80 CEOs that are telling me what they're seeing out on the horizon. So that to me is extremely valuable.

AI assessment note: “let's build a company that can have a very broad perspective on what it invests in”

Q So you and the team joined Guggenheim with whatever it is, one, two billion in assets. And over that subsequent period of time, it just took on its own trajectory. So what were the key milestones in that path at Guggenheim?

A Yeah, so October, 24th, 2001, right after nine 11, we ended up moving to Guggenheim. So six of us that left Whitney and formed the credit business at Guggenheim. And the first large client was a large shareholder of Guggenheim was Midland. And Midland was an insurance business that was owned by Salmons in Dallas. And Our first job was to go deep on 10 names that Salmon's had invested in. And if you recall, that was right when Enron, WorldCom, Tyco, there was these large investment grade businesses that were basically, if you boil it all down, they were showing earnings, but their capex was so large that their capex was greater than their earnings. So they're actually relying on the capital markets to fund themselves. And Salmon's at the time owned sixty eight million dollars or so worth of Enron bonds. So I remember Thanksgiving of 2001 was going deep on Enron. And when we were spreading Enron to figure out what Enron was really all about, we basically called up the CEO of Salmon's. And at the time the Enron bonds were trading right around 88, 90 cents on the dollar, depending on the bond. And we basically made the recommendation to sell the Enron debt, and the CEO of Salmon's at the time said, you guys are wrong. We shouldn't sell Enron, and we don't want to take a ten-point loss on sixty-eight million bonds, and we said, okay, well, we don't see how The business is not a hund…

AI assessment note: “October, 24th, 2001, right after nine 11, we ended up moving to Guggenheim.”

Q At what point in time did you decide to launch Eldridge?

A I think I had had a great run and really am excited about all that I did at Guggenheim for almost 15 years. But when I was given the opportunity to go out on my own, That was inspiring, and you had the opportunity to go build something, and I had built a great business at Guggenheim with great partners, and now it was the opportunity for me to go and do it in my own direction. And obviously, you know, partnerships are kind of like marriages. You're sharing a vision. You're sharing a goal. And now at Eldridge, I get to craft it without having to think about other complexities. It's really, what is it that we want to build and what is it that we want to do? And for me, growing businesses is so exciting. It's what I want to do. And Guggenheim made the decision that they wanted to really go deep in fixed income asset management, insurance asset management, And investment banking, sales and trading. But that gave me the opportunity to acquire the media assets, to acquire the real estate businesses, all the stuff that I had been building at Guggenheim that was in its infancy, frankly, because that was not what they wanted and I understood it. So it was a great opportunity for me to build on what I had started. And a great opportunity for me to kind of cast my own direction and exactly how I want to spend my time.

AI assessment note: “when I was given the opportunity to go out on my own”

Q How do you think about the advantages of your funding structure today?

A The best part I get to tell people is I follow your lead. We have CEOs that want to be public companies. We have CEOs that never want to be public companies. The good news is our model is such that as long as it's compounding and growing, I don't need to sell my winners in order to prove a point. Of course, like EPRT essential properties, you know, we had a great CEO and his dream was to run a public company. So we were perfectly suited to help that, but we can be really flexible with finding out what someone wants relative to what we want and what we want. Is just continue to grow value. I tell people all the time, just focus on the left side of the business, the balance sheet, grow that, grow the assets, make it worth more money. How you ring the bell is just an exercise. Ultimately, if your slaves are focused on the left side of the balance sheet and growing the assets or the value of the business, to me, how you manage the right side of the balance sheet, so easy. So really go deep on the left side, focus on the left side, and if you're a CEO and you decide that you want to sell the company, great, we're there for you. If you're a CEO and you decide you want to keep going, great, we're there for you. For us, we can respond so easily to whatever the Leader wants. And I think that's unique. And we're not going to be the ones to tap on someone's shoulder and say, oh, we got to…

AI assessment note: “our model is such that as long as it's compounding and growing, I don't need to sell”

Q I'm curious how you think about sourcing opportunities, because it feels like you're investing in something that's tangential and then pulling a thread out of that same theme. Where did these ideas come from?

A One of the things we care a lot about is the relationships that we have. And we try to give quick no's and we try to give quick yes's. And because we're Not investing out of funds, and we don't have investment committees, and we don't have complexity. Usually, funky, interesting things end up at a place like ours. So I'll get phone calls where someone says, I've got this situation, and they start to go through the dynamics of the situation, which make it clear that it's almost like a special situation of types. And we want to be able to respond to those when there is a complexity or there's a reason why this business is going to trade at this level. And we think it's going to end up being worth this, or we've already got a buyer built in and the buyer's not ready today, but there's no guarantee the buyer will show up, but the probabilities are high that the buyer will ultimately show up. And you think about yourselves as just being a bridge. That's going to make a really compelling rate of return for a period of time. So we find a lot of these interesting opportunities, and then also, I don't compete directly with anyone. So I can be Switzerland, and I don't need control as long as I have structural seniority. So I tell everyone, if you want control, all I want is then a preferred. If I have control, then I don't need a preferred, but I don't want to give someone else control a…

AI assessment note: “One of the things we care a lot about is the relationships that we have.”

Q What does Eldridge look like over the next 24, 36, five years, 10 years?

A I just hope it continues to grow. I used to tell everyone at Guggenheim that if you're not growing, you're dying. And ultimately some people would be like, why would you say that? And the reality is that if you're not giving people opportunity to evolve and grow, Then you're creating an environment that's stagnant. So my job is to continue to grow so I can continue to grow all the human capital around me and give them opportunities in order to step up and grow. So to me, I just want to keep compounding and growing Eldridge. I want to keep finding interesting businesses to invest in, and I want to keep getting closer and closer to the sourcing of those opportunities. And sometimes that means finding Matt's business, and he needed fifty million of capital in order to grow to get to the next level. He needed new board members. He needed a new CTO. He needed a lot of which we were able to help him get. So finding businesses like that that have these great opportunities, and you can see how it works on a whiteboard, but the problem with the whiteboard is the stick people aren't the same as the humans, right? So, you know, the humans never behave like the stick people on the whiteboard. But ultimately, we've got experience, resources, knowledge, and it's for us, it's finding those businesses and keep growing with them. We've done some stuff in Europe, but I want to keep growing in Eu…

AI assessment note: “I just want to keep compounding and growing Eldridge.”