Episode summary
The Golden Age of Absolute Returns? With Davidson Kempner’s Managing Partner and CIO, Tony Yoseloff
Money Maze Podcast
· · 52 min · Guests: Tony Yoseloff
Summary
Tony Yoseloff argues that higher rates, wider dispersion, and less direct competition have created a fertile setting for absolute return investors, and he says Davidson Kempner is seeing that first-hand across opportunistic credit and event-driven strategies. He says the firm invests across public and private markets because public-market mark-to-market discipline helps private investing, while private exposure provides information that improves public-market decisions.
He also disentangles “private credit,” saying most headlines really refer to direct corporate lending, which has grown to roughly the size of the bank syndicated lending market. In his view, too much capital has crowded into that lane, especially through sponsor-backed lending to private equity-owned companies, leading to weaker covenants and a build-up of blocked or troubled situations. He expects the clean-up to take years, not months, because incentives in private equity and debt delay resolution.
Yoseloff is constructive on opportunity outside the US, especially in Europe and India, where pricing, regulation, and market structure can still reward skilled lenders. He also warns that AI and heavy capex may be prolonging a late-cycle environment rather than ending it, which could push some distress out while creating selective winners.
Key takeaways
- Tony Yoseloff says the resolution of private equity and private debt blockages will likely take much longer than investors expect.
- He argues that higher-rate regimes create more dispersion and idiosyncratic risk, which favors absolute return strategies.
- He says private credit headlines mostly describe direct corporate lending, now roughly as large as the bank syndicated lending market.
- Yoseloff sees deteriorating covenants and looser terms as a clear sign that capital has crowded into direct lending.
- He believes Europe can still offer value because cheap assets can produce good returns even without strong growth, and India offers improving credit opportunities.
Notable quotes
“I think we're in a golden age of absolute return strategies”
“If everyone's in the same asset class and your asset class ultimately outgrows the size of borrowers that are available to lend to, that's where you can start to have real issues”
“I think it could take a lot longer than people think to work this through because you have to worry about what incentives are, right”
“you can buy cheap and sell cheap and still do really well”
How the episode opens
I think we're in a golden age of absolute return strategies. We discovered fundamentally is there's much higher dispersion and much higher idiosyncratic risk in higher interest rate markets than lower interest rate markets. Just because the cost of capital today is higher doesn't mean the cost of capital is high.
Having a 10-year rate in the mid4s isn't extraordinary. It's just extraordinary based upon where things were. When you read in the papers about private credit, what you're really reading about is direct corporate lending market.
If everyone's in the same asset class and your asset class ultimately outgrows the size of borrowers that are available to lend to, that's where you can start to have real issues. You've had 10ear cycles in venture capital. You didn't make any money in venture capital in the 1980s and you made very little to no money in the 2000s.
You missed the great funds at the end of the decade that would had Uber or Airbnb in them and stuff along those lines. And so I I think again if you really like your vocation and you like what you're doing, you're going to stick with it even when the times are a little tougher. In the world of global credit and invent driven investing, there are few firms that have been both quietly competitive while simultaneously successful and longstanding.
Davidson Kempner may not be a household name, but they've navigated cycles by identifying opportunities which typically emerge from dislocations and complexity when the power between borrowers and lenders shifts. It's been said of Tony that he prefers discipline over drama. And given emerging crosscurrens, it seemed a good time to hear the perspective of where the next phase of the global credit cycle may be headed and where capital may be rewarded or punished.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- global credit
- private credit vs private equity
- economic cycle assessment
- private markets blockages
- absolute return
Companies and tickers mentioned
- Davidson Kempner
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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