Scott Goodwin - Know The Names

**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, stories and strategies that will help you better invest both your time and your money.
Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at joincolossus.com.

**SPEAKER_2** (1:52)
Patrick O'Shaughnessy is the CEO and founding partner of PositiveSum and 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 PositiveSum or O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of PositiveSum or O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:24)
My guest this week is Scott Goodwin. Scott is the co-founder and managing partner of Diameter Capital Partners, which he started as a credit hedge fund in 2017 and has expanded into a $13 billion investment firm that covers all credit markets.
Scott spent the first eight years of his career at Citi, where he rose to head of high yield trading before moving to Anchorage Capital in 2010, where he led the global trading desk. Scott is one of my favorite examples of the joke I used to make about this show, when I said, it should be called, this is who you're up against. He's one of the sharpest investors I know, and I'm sure you'll see why. Please enjoy my great discussion with Scott Goodwin. All right, Scott, maybe an appropriate place to start would be to compare what you think of as the theme of the 2010s, with what you think the theme will be of the 2020s, across investing at large.

**Scott Goodwin** (3:12)
If I look at the 2010s, it's all about private equity, shareholders, return of capital, dividends, zero rates.
Now you're in an environment driven by inflation, higher rates, likely return of that capital to lenders, pensioners, savers, creditors, who are robbed of it in the 10s. You have this transition back that takes a long time. That's the theme that I like investing behind for the 2020s, which is exciting from a credit perspective because we're yield investors and credit investors, we haven't had that opportunity really since 2008

**Patrick O'Shaughnessy** (3:47)
You said it takes a long time. Give some like tangible examples, little anecdotes or something of how this might start to play out.

**Scott Goodwin** (3:53)
If you're sitting there as a pension and you have a 7% bogey or 8% bogey and your equities are at all time highs and now you feel like, now I'm funded, I'm going to start to rotate into investor grade corporate debt. You can buy 30 year investment grade corporate debt now yielding five and a half to 7% depending on the credit quality. And that starts to be a meaningful defeasement of your liability relative to equities that might have more convexity, but you don't need that convexity anymore because you can defuse your liability.
Those decisions take time to get made.
You also have the other side of it, which is a company just has too much debt, has been zombified by COVID. Maybe there's too much debt on the capital structure, but because rates were so low during COVID, the coupons are low. They've got maturities in 27, 28, 29 The bonds are trading at 60 cents on the dollar, 70 cents on the dollar. They're not defaulting tomorrow, but the creditors are essentially the equity, and eventually there's gonna be that transfer of value back to the creditors. So those are two kind of barbell examples of how I think it will happen.