Key takeaways

• Asset liability mismatches can lead to liquidity crunches, which may trigger credit crunches.
• Transitioning from the sell side to the buy side requires a shift in strategy and mindset.
• Understanding options and volatility is crucial for navigating distressed markets.
• Starting a hedge fund is difficult and requires resilience against rejection.
• Misjudging market conditions can lead to significant investment mistakes.
• Private credit emerged as a response to the limitations of banks in lending, particularly after the financial crisis.
• The growth of non-traded BDCs has been unprecedented, reaching $350 billion from 2018 to now.
• The non-traded BDCs could work well for the right private wealth clients, but there’s a mismatch in client sophistication.
• Good risk management in drawdown funds should include a larger liquidity sleeve to minimize unfunded commitments.
• A clear plan is essential when trading on the buy side.
• The sell side involves buying in the bid and selling in the offer, whereas the buy side requires paying the bid offer.
• Options strategy is vital in volatile markets, showcasing expertise in navigating complex financial environments.
• A low-volatility regime can obscure macroeconomic changes, leading to investment misjudgments.
• Banks face regulatory and operational challenges in lending, especially post-financial crisis.
• Aligning investment products with client sophistication is crucial for successful investment strategies.

Guest intro

Kieran Goodwin is a Partner at Saba Capital, a $6 billion hedge fund manager that seeks to identify dislocations in credit and equity markets to generate convex returns in volatile times. He has been one of the top credit traders on the Street for the last three decades across roles at investment banks in the 90s and early 00s, King Street, and his own hedge fund, Panning Capital, which he joined Saba from in 2024.

Asset liability mismatches and liquidity crunches

• Asset liability mismatches can cause liquidity crunches, leading to credit crunches.

• I truly believe that asset liability mismatches cause liquidity crunches and liquidity crunches can cause credit crunches.

  — Kieran Goodwin

• Understanding asset liability management is crucial for financial market stability.
• Liquidity issues can cascade into broader financial problems.
• Proper management of asset liability mismatches is vital for preventing financial crises.
• The relationship between asset liability mismatches and liquidity is a key risk factor.

• Liquidity crunches can lead to credit crunches.

  — Kieran Goodwin

• Effective asset liability management can mitigate financial risks.

Transitioning from sell side to buy side

• Transitioning from the sell side to the buy side requires a strategic mindset shift.

• When you’re on the sell side you buy in the bid and sell in the offer… when you go to the buy side and you initiate a trade, you’re automatically down because you’re paying bid offer.

  — Kieran Goodwin

• The buy side demands more intentional trading strategies.
• Portfolio management on the buy side involves complex strategic planning.

• You have to be much more intentional… the strategy of thinking about how you want to create a portfolio trading positions also exit strategy all of that hits you in the face when you go to the buy side.

  — Kieran Goodwin

• The buy side requires a clear plan for trading and portfolio management.
• Understanding market dynamics is crucial for successful buy-side operations.
• A strategic approach is essential for navigating buy-side challenges.

Navigating distressed markets with options and volatility

• Understanding options and volatility is crucial for distressed market navigation.

• The goal was how do you find the cheapest options with the lowest amount of theta in the markets… we embrace the volatility and we probably did our best during times of volatility and when markets are calm I’m not that good.

  — Kieran Goodwin

• Options strategy is vital for managing market volatility.
• Embracing volatility can lead to successful market navigation.
• Options provide tools for navigating complex financial environments.
• Volatility can present opportunities for strategic market engagement.
• A deep understanding of options enhances market navigation capabilities.
• Options and volatility strategies are essential for distressed market success.

Challenges of starting a hedge fund

• Starting a hedge fund is challenging and requires resilience.

• It’s hard starting a hedge fund is difficult anyone who does it successfully I always have a hat tip too because you’re out on your own and it’s easy for people to say no.

  — Kieran Goodwin

• Hedge fund managers face psychological and operational challenges.
• Resilience against rejection is crucial for hedge fund success.
• Starting a hedge fund demands perseverance and determination.
• The hedge fund industry presents significant startup challenges.
• Successful hedge fund management requires overcoming numerous obstacles.
• Emotional resilience is key to navigating hedge fund industry challenges.

Importance of understanding market conditions

• Misjudging market conditions can lead to significant investment mistakes.

• One was not necessarily understanding that we were in this low vol regime and it wasn’t really gonna change getting the macro right sometimes even as a fundamental investor is crucial that was a painful lesson to learn.

  — Kieran Goodwin

• Understanding macroeconomic conditions is crucial for investment decisions.
• Low-volatility regimes can obscure important market changes.
• Accurate market condition assessment is vital for investment success.
• Misjudging macroeconomic factors can lead to costly investment errors.
• A clear understanding of market conditions enhances investment strategies.
• Market condition awareness is essential for avoiding investment pitfalls.

Emergence of private credit

• Private credit emerged as a response to banks’ lending limitations post-crisis.

• The idea was banks aren’t necessarily the best vehicle to make loans because they have deposit flight risk also you had the six time levered rule… some companies that are six times levered like a software company could be a good credit risk.

  — Kieran Goodwin

• Banks face regulatory challenges in lending, especially post-crisis.
• Private credit offers a viable alternative to traditional banking for lending.
• The financial crisis highlighted banks’ limitations in lending.
• Private credit addresses banks’ operational challenges in lending.
• The shift towards private credit reflects changes in the financial landscape.
• Private credit provides solutions to banks’ lending constraints.

Growth of non-traded BDCs

• The growth of non-traded BDCs has been unprecedented, reaching $350 billion.

• It grew really fast zero to $350,000,000,000 in non traded bdcs from 2018 to now that’s unprecedented.

  — Kieran Goodwin

• Non-traded BDCs represent a significant trend in private credit markets.
• The rapid growth of BDCs indicates a shift in investment strategies.
• Non-traded BDCs have become a prominent part of the financial landscape.
• The expansion of BDCs reflects changing demand in private credit markets.
• BDC growth highlights evolving investment strategies in private credit.
• The rise of non-traded BDCs underscores significant market shifts.

Aligning investment products with client sophistication

• Non-traded BDCs could work well for the right private wealth clients.

• I do think that there is a potential for a non traded bdc to work with the right private wealth client… there might be a mismatch of the right client to the product.

  — Kieran Goodwin

• Aligning investment products with client sophistication is crucial.
• Client-product mismatch can hinder investment success.
• Successful investment strategies require client-product alignment.
• Understanding client sophistication enhances investment product effectiveness.
• Proper alignment of products and clients is key to investment success.
• Tailoring investment products to client needs is essential for success.

Risk management in drawdown funds

• Good risk management should include a larger liquidity sleeve to minimize unfunded commitments.

• Good risk management would be a bigger liquidity sleeve so maybe more levered loan bsls trying to minimize unfunded commitments would be good.

  — Kieran Goodwin

• Effective risk management is crucial for maintaining fund stability.
• A larger liquidity sleeve can enhance risk management in funds.
• Minimizing unfunded commitments is key to successful risk management.
• Proper risk management strategies are essential for fund stability.
• Liquidity management is a critical component of risk management.
• Effective risk management practices enhance fund performance.