Episode summary
Jonathan Lewinsohn – Credit Microcycles at Diameter (EP. 484)
Capital Allocators with Ted Seides
· · Hosts: Ted Seides · Guests: Jonathan Lewinsohn
Summary
Jonathan Lewinsohn argues that credit investing is best understood through microcycles: industry-specific disruptions caused by technological change, policy volatility, or both. He says Diameter has expanded since 2021 into CLOs, direct lending, and capital solutions without losing its core hedge fund and dislocation focus, and that the firm now manages by looking first at the business quality and then at the capital structure. He describes direct lending as having moved from overhyped to underrated, while capital solutions are becoming more important as 2021-2022 vintage borrowers struggle with higher rates and heavy leverage.
A major theme is that private credit risks are shifting, not disappearing. Jonathan says software exposure is especially important because AI can accelerate replacement of legacy products, and Diameter keeps software below 10% of its direct lending book. He is more constructive on AI-linked infrastructure, especially data centers, fiber, wireless, and telecom, but says financing chip residual risk is still too hard to underwrite. In housing, he sees a frozen market created by the jump from low mortgage rates to much higher ones, and thinks building products and renovations offer one of the most interesting ways to participate in the eventual rebound.
He is also cautious but active in healthcare, chemicals, and distressed situations. Jonathan says healthcare is unusually exposed to policy volatility, while chemicals face potential upheaval from China’s push into base and specialty chemicals. Across all of it, he emphasizes that repeat-player behavior, cooperative agreements among creditors, and macro awareness matter more than ever because the next opportunity often comes from a microcycle, not a broad recession.
Key takeaways
- Jonathan says Diameter now runs a hedge fund, dislocation fund, CLO platform, direct lending, and capital solutions business, but only where each strategy complements the others.
- He thinks direct lending has gone from overhyped to underrated, while capital solutions are gaining importance as 2021-2022 borrowers face refinancing pressure at much higher rates.
- Jonathan keeps software exposure below 10% of direct lending because AI could create microcycles by replacing legacy workflow and data-standardization businesses.
- He is constructive on AI infrastructure, but says the hardest risk to price is chip residual value, especially for H100-type assets.
- He sees housing as a coiled spring and building products as a favored way to play the eventual rebound in transaction activity.
- He expects telecom, healthcare, and chemicals to produce more microcycle opportunities as policy, technology, and China’s industrial strategy reshape those industries.
Notable quotes
“the best opportunity for distressed has been microcycles”
“direct lending is top of the capital structure often to sponsors more and more to non-sponsors as well, usually for M&A or event transaction”
“We've done over 70 deals. As I like to say, no defaults, which of course we don't have enough track record for”
“We've spent a lot of time making sure that we have sub 10% of our direct lending business in that space”
“AI is great for that. These are missionritical software products. They're not just going to be unplugged overnight”
How the episode opens
What it means is the best opportunity for distressed has been microcycles. Go back during just my career and Scott's career when the MUN market got blown up because of some choice words said by a famous analyst after the financial crisis. Even the European kind of double dip recession in the peripheral countries.
Then the energy micro cycle in 201516. The California power micro cycle which most of California was impacted by and many counterparties. when Amazon and online retail upended mall-based retail and mall-based real estate then after COVID what we've seen in telecom we're seeing now in housing we could see in software it means when a whole industry that has a lot of debt is impacted by either technological transformation or policy volatility or both and handling things when you have a lot of debt is the
I'm Ted Sides and this is Capital Allocators. My guest on today's show is Jonathan Lewinsson, co-managing partner of Diameter Capital Partners, a credit focused investment firm he founded with Scott Goodwin in 2017 that manages $25 billion cross hedge fund dislocation CLO and direct lending strategies. Jonathan last appeared on the show 5 years ago interviewed by Kristen Van Gelder from Evston Capital and that conversation is replayed in the feed.
Our conversation offers a comprehensive credit market update, including Jonathan's take on the business of credit investing, private credit, industry micro cycles in AI, housing, telecom, chemicals, and healthcare, competition among creditors, the insurance-driven investment grade market, and the importance of macro awareness in credit investing. John's blend of investment insights and market opportunities is a real treat and comes on the occasion of a likely public listing of a diameter BDC. Before we get going, have you noticed that airline travel takes a lot longer these days?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- credit market update
- private credit
- credit microcycles
- investment grade insurance
- macro awareness
Companies and tickers mentioned
- Diameter Capital Partners
- Ascension Data
Watch the episode
Watch “Jonathan Lewinsohn – Credit Microcycles at Diameter (EP. 484)” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Capital Allocators with Ted Seides, this episode and its artwork belong to Ted Seides – Allocator and Asset Management Expert. Octagon is not affiliated with the show; this page is an independent summary.
