Alan Waxman - Private Credit and the Modern Financial System - [Invest Like the Best, EP.466]
Invest Like the Best with Patrick O'Shaughnessy
Why Crises Start With Mismatch
Alan Waxman argues leverage and asset-liability mismatch sit behind most crises, then explains how Basel III and Dodd-Frank created a safer post-GFC architecture.
My guest today is Alan Waxman, co-founder and CEO of Sixth Street, a $130B global investment firm.
Private credit is one of the most discussed topics in markets right now, and there is a lot to make sense of. The current discourse is almost entirely focused on symptoms. Alan Waxman has spent the time diagnosing the root cause.
Alan thinks about the financial system the way a historian would, studying the incentives, guardrails, and market structure that determine how things play out.
In this conversation, he traces the evolution of American finance from the 1929 crash through Glass-Steagall, the GFC, and Basel III to explain how we arrived at what he calls the factory model, the industrialization of liability-gathering and asset deployment that he believes is the root cause of everything happening in private markets today.
This is my second conversation with Alan, our first one is one of my favorites from last year.
For the full show notes, transcript, and links to mentioned content, check out the episode page here.
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Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com).
Timestamps
(00:00:00) Welcome to Invest Like The Best
(00:02:43) Intro: Alan Waxman
(00:04:35) Financial System Guardrails & Incentives
(00:05:56) System 1: Pre-1933 to 1999
(00:07:39) Glass-Steagall Legislation
(00:10:46) Deregulation & Rise of System 2
(00:12:27) Leverage, GFC, and System 2's Collapse
(00:14:25) Basel III, Dodd-Frank, and System 3
(00:15:32) Why System 3 Could Be the Best Ever
(00:19:04) Behavioral Shifts Starting in 2018
(00:19:52) The Factory Model
(00:24:33) Acceleration of Factory Model
(00:28:25) FRE Multiples and GP Incentives
(00:34:59) Wealth Channel & Asset-Liability Mismatches
(00:36:15) Why This Won’t be the Next GFC
(00:45:31) AI, Creative Destruction & Opportunity
(00:49:35) Alan’s One-Sheet Brain System
(00:55:01) Lessons by Decade: Hui
(00:59:28) Face the Tiger
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