Ali Hamed – An Update on Private Credit

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up-to-date at investorfieldguide.com.

**SPEAKER_2** (0:56)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
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**Patrick O'Shaughnessy** (1:21)
My guest today is popular past guest Ali Hamed, who joins us for an update on private credit. We discuss what has happened so far, what parts of the market are frozen and where opportunities may lie. We also talk about how the world has shifted digitally since the beginning of the COVID pandemic.
Please enjoy my conversation with my friend Ali Hamed.
So Ali, I've been doing a lot of these updates on specific areas of the market in the COVID era. I haven't done private credit yet. I've been really excited to talk to you about not just private credit, but sort of all you see in the ecosystem that you operate in. Maybe you could begin by giving me a sort of state of the union. What are you focused on right now? What's been surprising or unsurprising about the world of private credit and how it's reacted to COVID thus far?

**Ali Hamed** (2:05)
Sure. So I think the first reaction is everyone sort of froze for at least the first 30 days.
I mean, the problem is, no one underwrote to a pandemic and no model matters anymore. I was telling you, we were having a conversation in our investment committee meeting this morning. We were having like a genuine conversation of what if over 50% of people in New York City don't pay their rent? And then I like look out my window and I'm looking at all these buildings and like, oh my god, it's truly insane. And so I think that the number one difficulty in transactions closing are that there's such a variance of outcome that people don't really know what safety is anymore. And so I think the first thing that started to happen is anything that was a short duration asset started to have to get worked out quickly. A lot of people say, well, the shorter duration my asset, the less correlated the market I am because if I buy something that's five years long in duration, like I don't know what's gonna happen in year three, but by something that's 60 days in duration, like a receivable or like certain merchant cash advances, I can probably figure out what's gonna happen 60 days from now.
In this case, the world changed so dramatically, so fast, that if you have an asset that's due in 60 days, you're dealing with it now because maturity is coming up. And if you had like a five-year loan out to somebody, you can defer a payment for a few months and sure, three of the 60 payments may not come in, over the life of that asset, you're gonna be okay. If you have a 60, 14-day, 70-day asset, you are probably not picking up the phone for anything else.
And also, for a lot of people, their funds weren't set up to do trades as quickly as they occurred. I think a lot of the stuff that happened in March, you really had to have a certain fund structure or a certain level of discretion to go make certain trades because the trades went away so quickly. So there was a combination of people freezing if they didn't have to do anything.
The shorter duration your asset, the faster you're trying to move. And then the other two things that we started to see first was basically people spelling uncertainty. What wasn't really distressed and distress, you kind of have a thing and the thing didn't go as well as it was supposed to go. And so you can buy it cheap and for a high yield and exchange for all the work you're going to do to try to fix it.