Lippmann: Stale credit agency ratings have provided 30 years of profitable trades
Greg Lippmann · Greg Lippmann – The Big Short and Structured Credit at LibreMax (Capital Allocators, EP.270) · Sep 12, 2022 · at 42:41
Greg Lippmann, CIO of LibreMax Capital, explains why LibreMax profits from mispricings in secondary structured credit markets relative to static agency credit ratings.
0:00 / 0:08exact quote · 8.4s
720p mp4 · rendered on demand · StarZero watermark
“One of the things I've made money on for 30 years is that the rating's Are very, very stale. And sometimes they're stale too good. Sometimes they're stale too bad.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from Greg Lippmann
Lippmann told Deutsche Bank to fire him rather than unwind his subprime short
“I had to maintain my position at the bank and not everyone at the bank agreed with it at all times. I ultimately had to, if anything, say, you know, I'm not taking it off. Fire me if you want, but I'm not taking it off.”
Lippmann: Running structured credit properly is impossible under $500M AUM
“We spend millions of dollars a year on data, and on a team to sort of process that data, and then on each of the sector heads where they're reading the documents, and they're parsing the structure and understanding this, so it's really difficult to do what we …”
Lippmann: 2000-vintage mortgages in booming regions had 6-7% default rates
“What we saw was that after six years,
The default rate in places in the top quartile where homes were going up 12 to 14% a year, the default rate was still six or seven percent.”
Lippmann: Slow-growth 2000-vintage mortgages had 28% defaults and 50%+ losses
“But if you looked at the bottom quartile for houses, they were going up three to four percent per year, and 28% of the people were defaulting. And we were losing 50, 55 cents on the dollar when they did, because of the similar type of slippage.”
Lippmann: Better-perceived subprime tranches had infinite short supply, worse ones had limited supply
“The names that the broader market thought were good, there was an infinite supply of those names. The names of the broader market thought were not so good. There was less of a supply. So the guys that almost got too smart for their own good, they were focused …”
Lippmann: Structured credit remains resistant to quantitative investing
“One thing that is really attractive about the space is the esoteric nature of it. It remains somewhat resistant to sort of the quantification of most of investing. Some of that relates to each deal is different. So it's a little bit harder to do that because w…”