Steven Tananbaum: The Evolution of Credit Investing and AI Opportunities

**Steven Tananbaum** (0:05)
So when I think of AI on the credit markets, I think of it two ways. First is economically, because it's such a driver of our economy.
It's hard to see how it's going to actually accelerate from here. So the issue is that de-accelerates, what's going to be the impact. That's probably to me the biggest issue, and if it de-accelerates, will people be taking down their economic growth assumptions? And then there's the trying to line up where the best opportunities are between the different markets. And it could be the investment-grade market, could be the better risk-adjusted opportunity.

**John Waldron** (0:41)
Welcome to Goldman Sachs Exchanges, Great Investors. I'm John Waldron. I'm about to sit down with Steve Tananbaum. Steve is the founder and CIO of GoldenTree Asset Management, a credit manager with over $70 billion in assets under management. He also happens to be one of the sharpest and most successful debt investors in the world. Today, I'll find out what's behind his success and where he sees opportunities ahead.
Steve, welcome to Great Investors at Goldman Sachs.

**Steven Tananbaum** (1:12)
John, it's great to be here.

**John Waldron** (1:13)
So your first job was a kidder Peabody, I believe. And then McKay Shields, this is where you and I met.

**Steven Tananbaum** (1:18)
Yes.

**John Waldron** (1:19)
How would you describe your early career and lessons learned in those first couple of jobs?

**Steven Tananbaum** (1:24)
So when I think of kidder Peabody, a two-year investment banking training program focusing on M&A and high yield, and I went from an environment being a student where I had 25 to 30 hours of work each week to having 100 hours of work. So very overwhelmed. I'm sure that you could relate from your experience at Bayer. And I was overwhelmed. So I had to have this strategy of, okay, what all I want to accomplish? How am I going to curate my day?
And really be very deliberate about that. So that was probably the biggest memory of Kitter was, how do I approach a day? What do I want to accomplish? And be very deliberate, results-oriented. In Mackay, I get there, and within two years, they give me the portfolio to run. So it's about a half a billion dollars. It's ranked 89 out of 91, which I didn't realize for anybody who's about to take over the portfolio, that is the best position that you can be. That was a gift. Yes, there's only one place to go.
And it was probably within three years, we took it to number one.
But my approach was, okay, how are we going to do better? And I had a couple of moves. The first move was, if I think earnings are going to be better than what the market does, I bet the bonds are going to go up. So we had that earnings momentum. And the other was for some of these distress names or stress names, which there were a lot in the early 90s. This was around the S&L crisis.
That if there was intrinsic value, if companies were trading below intrinsic value, then there would be interesting creates. So for something like an RJR and a Bisco, that would be the earnings momentum. And that they could grow into their balance sheet. And it seemed like with Philip Morris at nine to 10 times EBITDA, and you can create RJR and a Bisco closer to four times in the mid to high teens, that there was something to do there, where they could equitize part of the balance sheet, and that would be good. Or six flags, where you could create the debt at 50 cents on the dollar at three times. Another thing kind of an early lesson, so that was a strategy, but an early lesson was trying to think of how do other portfolio managers think? And that was something that I began to, being in a mutual fund where there's inflows and outflows, began to think how do they behave and why?

**John Waldron** (3:46)
Kind of a game theory approach or?

**Steven Tananbaum** (3:48)
It wasn't so much a game theory as watching them behave. So in other words, a game theory is what's the logical way, opposed to no, what do they do and why do they do it? So for instance, when I got outflows, I try and sell the hardest stuff first because I noticed I couldn't sell it in a week or two. Whereas they would sell the most liquid stuff first.
And so moves like that. One of the moves that I ended up doing later was after the financial crisis, I couldn't sell any loans at 82 cents because you got dinged, was very prohibitive to buy a loan at 82 cents. But if I sold it 86 cents, you got much higher credit in the CLOs. So I began to lift my offerings to 86 cents because I knew that they were looking for loans at 86 cents. There was liquidity there.