Building a Global Private Credit Firm and 'Trading' Planes with Victor Khosla
Sep 19, 2024
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Victor Khosla, Founder and CIO of Strategic Value Partners, shares his extensive expertise in distressed debt and investment strategies. He discusses the evolution of high-yield markets and explains how technology can facilitate sustainability. Victor delves into the challenges of commercial real estate and the dynamics of distressed investing, emphasizing transformation over cost-cutting. He also highlights the importance of mentorship in finance and the intersection with his passion for tennis, offering insights for aspiring professionals.
Victor Khosla outlines the significance of strategic debt restructuring in reviving distressed companies rather than relying solely on equity investments.
Khosla highlights the evolving landscape of distressed asset investing, illustrating its growth from $200 billion in leveraged loans to $5 trillion today.
The podcast emphasizes the importance of long-term value creation over short-term trading profits in navigating turbulent economic conditions.
Deep dives
Challenges of Decarbonization
Decarbonization efforts are currently lagging behind the needed pace to tackle climate change effectively. Many stakeholders are betting on upcoming scientific advancements to address these challenges, while others argue that existing technologies can be leveraged more effectively to reach net-zero emissions sooner. The podcast emphasizes that a holistic strategy is vital, as organizations may waste resources by working in silos rather than integrating technology across their operations. As companies face external pressure to reduce carbon footprints, the strategic use of established technology becomes imperative for fostering meaningful change.
Victor Koesla's Background and Career
Victor Koesla, founder and CIO of a $19 billion strategic investment firm, has had a storied career in distressed debt. He established the distressed debt department at Citibank in the early 1990s, a time when this market was just emerging. His insights into the distressed debt business stem from being present at its inception and navigating its evolution through various economic cycles. Koesla notes that the growth from $200 billion in mid-90s leveraged loans to an estimated $5 trillion today illustrates the massive potential and shift in the landscape of distressed asset investing.
Investing Strategies in Distressed Assets
The podcast discusses Koesla's firm and its approach to investing, particularly in distressed businesses and hard assets such as infrastructure and real estate. A significant aspect of their strategy involves taking control of companies through debt restructuring rather than equity investments to drive operational improvements. Koesla highlights the importance of identifying the intrinsic value in companies facing financial difficulties, as many good businesses experience challenges due to excessive leverage rather than fundamental flaws. This nuanced approach allows the firm to thrive even in turbulent economic conditions by reimagining operational strategies to revitalize distressed assets.
Market Dynamics and Economic Prospects
Recent economic conditions have created a target-rich environment for distressed investors as rising interest rates strain leveraged companies. Koesla believes that while economic growth persists, challenges stemming from increased borrowing costs and existing debt maturities will significantly impact these companies in the coming years. The conversation draws attention to the potential for distressed investment opportunities as companies navigate financial hardships while also hinting that not all sectors will face the same level of risk. This phase is characterized by the urgency for collateral reassessment and necessary restructuring approaches in response to market fluctuations.
Long-Term Value Creation in Distressed Investing
Koesla emphasizes that his firm focuses on long-term value creation rather than short-term trading profits typically seen in distressed debt markets. By investing in operational transformations and management enhancements, they aim to drive sustainable recovery and growth within the companies they take over. This involves creating tailored business plans and operational strategies to improve performance post-acquisition. The podcast suggests that this proactive, hands-on model of investing allows them to remain resilient in turbulent times and capitalize on the weaknesses of leveraged firms.
Barry Ritholtz speaks with Victor Khosla, Founder and CIO of Strategic Value Partners. Prior to establishing SVP in 2001, Victor served as President of Cerberus Capital and built and managed one of the top proprietary trading businesses at Merrill Lynch. He is a member of the Management Council at the University of Chicago Booth School of Business and sits on the board of Pratham USA. On this episode, Victor discusses the state of investing, 'trading' planes, and what it takes to build a leading global private credit firm.
