The transcript from this week’s MiB: Matt Cherwin, Co-Founder and Chief Investment Officer of Marek Capital, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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Masters in Business — Matt Cherwin Interview
[00:00:02] Narrator: Bloomberg Audio Studios, podcasts, radio News. This is Masters in business with Barry Ritholtzl on Bloomberg Radio
[00:00:21] Barry Ritholtz: This week on the podcast, another extra special guest, Matt Sherwin, is co-founder and chief investment officer at Merrick Capital. He previously spent 16 years at JP Morgan Chase and then a bunch of years at Citigroup beforehand running all sorts of spread markets, head of securitized product, lots of CIO and risk management titles. I came to know Merrick through a live event we did at Bloomberg last year. I found that his approach to credit and trading is absolutely fascinating and what Merrick is doing is really quite interesting. I thought the conversation was brilliant and I think you will also, with no further ado, my conversation with Merrick Capital’s. Matt Sherwin. Matt Gerwin, welcome to Bloomberg.
[00:01:20] Matt Cherwin: Thanks for having me. This is exciting. That was kind of, that was, that was a bigger windup than I was. I,
[00:01:24] Barry Ritholtz: I like a expecting, I like a big windup. Okay. ’cause it gives us an opportunity to roll back to the beginning and say, alright, bachelor’s in economics from the University of Pennsylvania. What was the original career plan? I, I don’t imagine people going to college and saying, I wanna be the head of global spread markets.
[00:01:43] Matt Cherwin: No, but that’s super interesting because our oldest is a sophomore in college now and he’s in the Business School of American. And I was just talking to him yesterday and he said, I’m now in, I think they call it like finance for business. I really like this new class. And I said to him, that reminds me so well of when I was in undergrad business school and I did the first couple semesters at econ and I hated it.
[00:02:08] Barry Ritholtz: And it was, I had a similar experience for that
[00:02:10] Matt Cherwin: Economics and it was like, you know, I, I shouldn’t have hated it as much as I did, but at the time it was ISLM curves, it was supply, it was demand, et cetera. And it just, it felt, it didn’t feel very practical to me and I didn’t do very well then. I didn’t go to class very often. I didn’t do very well. But then we got to kind of the next semester, right, which I think they called Finance 1 0 1, right. And was like, bond math, discounted cash flows. And I was like, oh this, I like right, okay, I am in the right place.
[00:02:39] Barry Ritholtz: Well, it’s much more realistic and you’re not dealing with homo economy ’cause that is this theoretical, although version of humans, you
[00:02:46] Matt Cherwin: Know, looking back on, I wish I had listened a bit more at some of those others, but you know, something I say maybe we’ll we’ll get to is like it just and recommendation I would give to other people. It took me a little while to realize what I was interested in, what I was interested in being interested in. And when I got into some of those classes, kind of the more financey kind of stuff, I was like this, I like this makes sense. I wanna learn more. And I think that’s kind of where it starts. I always wanted to get, I just like when there’s, you know, numbers on the page, it adds up to something you’re trying to make money. It’s hopefully positive at the end. It might be negative. It’s pretty clear cut. At least the goal is. And I always like that. I always gravitated
[00:03:26] Barry Ritholtz: Towards that. So, so economics way too abstract and academic, but business and finance, practical, applicable, real life usage. Yeah.
[00:03:36] Matt Cherwin: Which is interesting too. ’cause I also, I’m a little bit like a, this a little exaggerated, but I’m a little bit of like a history buff. So like it was interesting that, that what didn’t, didn’t appeal to me. ’cause I do like kind of the history of it. How did we get here? And I think that’s always something that I’m like in this form as well, going back to learn more about financial systems, how money works, how they thought it used to work, different schools of thoughts. And I think really helps you understand where you’ve been, where you are, where you’re going.
[00:04:08] Barry Ritholtz: So when you look back when you were group treasurer or chief investment officer at, at the JP Morgan division, you were, you were involved in, what sort of lessons did you take away from that? You’re, you’re in the real world managing real risk, real portfolios. How, how did that experience change how you perceive risk? Yeah, it’s
[00:04:28] Matt Cherwin: A great question and I’ll tell you. So like obviously I had a career with a background in trading, running, trading teams both on the buy side and the sell side. And it was really that experience that this next piece that was transformative for me and you know, really brought us to the point where my partner Derek Goodman and I decided let’s form Merrick. And you know, I’m sure we’ll get into that a bit. But what happened was I spent 20 odd years trading mortgages, rates, corporate credit, high yield products like that, working with specialty finance companies, some that I worked with, some I had a hand in running this kind of universe. And then in late 2019, the opportunity to move over. And this was a different building, different, you know, Waldorf key card, different team and be the CIO and the treasurer. So this is now buy side, running the capital of the firm, the investment of the firm, hedging and managing structuralists.
[00:05:27] Matt Cherwin: Lots of things wrapped up in there. But the real thing was, the point in time where this happened was late 2019, a few days later, was the repo crisis. If we remember that when all of a sudden if you wanted to borrow overnight against treasuries, it cost you 10%. Right? Okay. Six months after that pandemic breaks out. And why I bring that up is so much changed in dramatic size at rapid speed that I saw something I’d never seen before. And it was, how does the financial system really work and what does it mean and how does it apply to everything that I’ve done? And it was one of these moments where I felt like I just went from being the captain of the ship, you know, my own little thing, right? We’ll be a little expansive with it. I went from being a captain of ship to going to work in the engine room and seeing the actual gearing and how it works and how it doesn’t and what could stop it from working.
[00:06:26] Matt Cherwin: And you spend years, you know, you pull a lever, you think the boat goes faster, but you don’t know why and you don’t know what could stop it from doing that. And you don’t know what could make it work more efficiently. But now you go work in the engine room and you see it and you understand it. It was just this aha moment. Like, we’re two guys with glasses, right? So, you know, when you go to the the, you get a new prescription, you get your new glasses, you put ’em on, you’re like, oh my God, I can see, right? And by the way, how was I walking around the streets of Manhattan with that old prescription? But now I could see clearly and honestly 20 odd years into my career, that’s how I felt at that, that moment
[00:07:03] Barry Ritholtz: In 2019. Yeah,
[00:07:05] Matt Cherwin: I would say like in early 2020, about six months in, it was kind of like, oh my goodness, it’s coming together now. I wish, I wish I had known this for the 20 years that proceeded this, but I felt like now I know nothing and I’m starting to learn.
[00:07:20] Barry Ritholtz: So I have to ask. So my experience with 2019 was that wobble seemed to go by so quickly compared to oh 8, 0 9, where, you know, to me you saw a lot of warning signs first in housing and then in securitized product and then in construction. And then, you know, the market didn’t peak till October oh seven and the next 18 months were kind of fun if you were on the right side of it. But if you weren’t, I’m, it must have been a, a bloodbath. It sounds like you derived more out of the 2019 experience than you are on a desk in oh 8, 0 9. What sort of scar tissue did that leave? How, how, yeah. Informative was that Mom,
[00:08:05] Matt Cherwin: That’s really interesting the way you kind of put those together. And so to set the table a bit, oh 7 0 8 when I, I got to JP Morgan late oh 6, 0 7, 0 8, 0 9, I was in charge of head of team. We traded asset backed security, say credit cards, auto student loans, subprime mortgages, remember those? Yeah, CLOs. So really kind of like the center of what ended up happening after that. And I would say it was so overwhelming at the time. I mean we were there two in the morning hand marking bonds. Okay. Walking across the street between the two buildings. Like is there more information this company might buy that company before the market opens? What else can we do? The numbers were huge. It was almost like a bit more than you could process at the time. But I think each one of these became every step there was like, I understand what I’m doing better now because the first thing I ever did was I started, I was a cashflow structure.
[00:09:11] Matt Cherwin: And actually at that point in time, the guy who ran the department was a friend of mine named Bruce Richards, who went on to start marathon and has had a fantastic career. And we keep in touch and he said, I said, I wanna be a trader. And he said, well, I want you to be a structure because if you learn how the cash flow works, how the structure works, then you’ll be a better trader later on. I think each piece helped me understand the risk better and then the system it sits in and that helps you understand the risk better. And then when you understand the risk better, you understand the system, it sits in better and it builds and it builds on top of each other. So I would say in oh eight I learned more in oh eight we saw, we felt like we were the tip of the spear in like a bad way.
[00:09:55] Matt Cherwin: And we could see it was getting worse and it was accelerating and we could see that people were maybe even underestimating. And I remember some conversations around at the time that we were basically saying like, think bigger, think broader, think worse. That’s the context we’re talking about. But all of that helped me understand how does my product that I’m trading fit into an investment bank? How does an investment bank impact the system? I think when I went into 2019, obviously a lot time had passed, I’d had more experiences, et cetera. I remember sitting in a meeting, we’re in 7:30 AM traders meeting, this is with the CIO group. And we go around the table, my, you know, rates lead, my credit lead, et cetera. And the repo guys walk in and they say, Hey, we can lend against treasuries at 10%, should we do more? And I said, guys, I, this is my third day with this team. Okay, I’m the person in the room who knows the least about what you’re talking about. But if you need my authorization, you have it. ’cause that sounds pretty great.
[00:11:04] Barry Ritholtz: 10% yield begins with
[00:11:05] Matt Cherwin: Treasuries. That’s fantastic. My response to you is how much can we not, can we do more? Like how much can we do? Meaning more and more. And that just became the beginning of like, why did that happen? How did we get here? What’s the, where did it come from? Where does it go? And I found that certain people knew certain pieces, but not the picture. And then you’re like, it it, it was just starting to pull at
[00:11:30] Barry Ritholtz: And that was your job to know the whole picture.
[00:11:32] Matt Cherwin: It be, it became, it became the only, it became the focus of what I wanted to know. Because unpacking that would help me understand how do we get here, why does this happen? And by the way, what are the pieces that put this all together and how do we, how do we take advantage of that? How do we protect ourselves, but also how do we take advantage of that? So it it was this, the whole thing was this, one of those types of things you say, I opened up a door, three doors behind it and I wanna keep going that direction. And it felt to me like a pure and pure version of everything I’d done in my career getting closer and closer to the source and pricing really,
[00:12:11] Barry Ritholtz: Really fascinating. One of the things I think a lot of people don’t realize about JP Morgan Chase during the financial crisis, and I never doing the research for Bailout Nation, I never got this really sourced the way I would’ve liked to. But JP Morgan Chase had their own derivative scare a couple of years earlier. And the word was, Jamie just said, clear all this junk off of our balance sheet. We don’t, we can’t handle this. Risk doesn’t seem to be worth the potential upside. So heading into oh 8, 0 9, they weren’t dealing with the same sort of existential danger that Merrill Lynch and Wells Fargo and go down the list all had, all had to go through. They, they were ended up being an acquirer of distressed assets, not a, a seller of distressed assets.
[00:13:09] Matt Cherwin: Well I think, I mean it was a tremendous place to work. I worked with incredible people, I learned a lot and I worked with great, great people that you’re just part of a terrific team. It’s fan, it’s fantastic place. I learned something that became transformative to everything I’d spent my career doing. So that’s why we set out to, and I said I want to do this. And that’s why we set out to build Merrick. When we said, you know, I recall Derek and I sat down one day and I said, let me just, here’s how I think about markets. I think about it in terms of money, capital, credit, liquidity and regulation. That’s my thought. Money capital credit, liquidity regulation, M-C-C-L-R. How
[00:13:53] Barry Ritholtz: Do you separate money from capital?
[00:13:55] Matt Cherwin: So I think money to me is how do you make it, how do you destroy it? How does it move through the system? To me, capital is a little bit more of how much do you have, how do you measure it, how much do you have? Are you making more, you destroying it. Credit is really, how is it being formed? How is it moving through the system? The financial system is changing now. It’s very different than it was a few years ago. We actually, when we were, you know, really trying to get our ideas on paper, we wrote a paper that we outlined saying, we described what we thought was the new version of the financial system. We said the financial system is changing your defacto recreating glass stegel. You have gcis. If you come from some of this framework, you know, are the globally systema, systematically important banks, systemically important banks think JP Morgan, Wells, bank of America, et cetera.
[00:14:50] Matt Cherwin: We said they’re the new g sibs people like Apollo, Blackstone, KKR, BlackRock, these are Aries, these are the folks that are actually making credit extension decisions in this economy. Okay? You have the traders like Citadel Securities, jump, Jane, some of these other names everybody’s familiar with. This is disaggregating the financial system and putting it into different buckets. So basically we think about where’s it coming from, where does it go? Who wins? Who loses? What are the flywheels here? This is a process that we apply to everything we do. Some of the guys on the team call it mcle, M-C-C-L-R. It’s the lens that we look at because we believe money, capital, credit, liquidity and regulation drives, economies, markets, and prices. And then you can really start to understand monetary policy, real estate, housing, the types of specialty finance companies we’ve talked about consumer. So this to me actually explains how it all works.
[00:15:57] Matt Cherwin: And we apply that. It’s a huge addressable universe. We trade rates, mortgages, securitized products, corporate credit related equities. It’s an enormous addressable universe with investors that have very narrow mandates that transact at different points in time and sometimes non economically and bound by potentially non-economic rules. Which means there are a lot of overlaps that people don’t take the advantage of and there’s a lot of gaps that they quite simply don’t bridge. And the setup for all of this, I think, and I’ve seen some stuff, a lot of your, your, your listeners have seen quite a bunch of stuff. We’ve seen things go right, we’ve seen things go wrong. This is one of the best setups we’ve seen in a long time. And so that’s why we went out to say I saw some interesting stuff, I learned some interesting stuff. There’s an opportunity set that we want to prosecute right now and it is an incredible time to do so. So we built a team. Sorry, go ahead. I was
[00:17:01] Barry Ritholtz: Fantastic team. I was just, no, I’m fascinated. Yeah, I, I I wanna roll back to something you said earlier, which was glass stegel is sort of being backdoor reapplied. Is that a function of people being risk averse or is that a function of people just specializing in their own silo? So you don’t have, you know, glass Eagle for people who aren’t economic and policy wonks separated the FDIC safe banks from the riskier investment banks. And once that was repealed in the late nineties, didn’t cause a financial crisis, but allowed all these banks to merge and get bigger. And maybe it made the crisis a little worse, but it, I don’t, I don’t think of it as the underlying cause, but the idea that the market is working its way back towards that is kind of fascinating. Right? So let’s address that
[00:17:59] Matt Cherwin: Right as you laid out, like Glass Sal to say, to oversimplify basically said like, you can hold deposits, you can underwrite securities, you can trade securities, things like that. And there were rules right? Now there are like some rules that say what you can and can’t do. But really there’s a lot more that has morphed into what people like to call private credit or we’re going to extend credit through these fashions, or some of the rules don’t apply to this group so we can trade the markets differently or we can make markets in a way that maybe the big banks can’t. And then the big banks say, well we’re viewed as super safe because I would argue we are. And that has its advantages also. So it’s like we recreated these artificial boundaries. What is great for us and the way we look at the world is we saw that, we see that, we understand that we also see and understand and think about all day long and put it into our portfolio construction and the, the, the risk that we build, it’s all up for grabs again, right?
[00:19:03] Matt Cherwin: So we’ve got Kevin Walsh nominated to be the Fed chair and Mickey Bowman is the vice chair for supervision. And they are, I dunno what, what the right adjective for it is, but they’re changing the rules and they’re pulling some of them down. And in my opinion, people just don’t understand which of them matter and which of them don’t. And the market moves to place on some that simply don’t matter. Like it’s lack of understanding of what SLR was and how that worked. And we don’t need to dive into that. But to simplify, they said we’re gonna remove this rule and it’s a big deal. And we at Marck said, you can take it off. It doesn’t matter. So everything the market’s doing in reaction to that is a potential opportunity for us vice.
[00:19:48] Barry Ritholtz: In other words, vice versa. People are overreacting to a regulatory change that is insignificant long term in
[00:19:54] Matt Cherwin: That example. Yeah.
[00:19:55] Barry Ritholtz: Coming up we can continue our conversation with Matt Sherwin, co-founder and chief investment officer at Merrick Capital, discussing why he launched the firm in 2024. I’m Barry Ritholtz, your listening to Masters in Business on Bloomberg Radio.
[00:20:22] Barry Ritholtz: I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Matt Sherwin. He is co-founder and chief investment officer of Merrick Capital’s specializing in a variety of alternative credit and related private products. Previously he spent 16 years at JP Morgan Chase where he had a number of very important titles before that Citi Group. Are we, in all that unique a period of time, is the opportunity set that much greater than what we typically see in the normal? You know, this is a little more geopolitically volatile administration than, than even the previous Trump administration. Is that a driver or is it the deregulation and misapprehension of, of what these rule changes mean? I
[00:21:12] Matt Cherwin: Think it’s a combination of what’s going on. So we have, we just kind of use some little catchphrases among the team that help us sort of like, you know, gravitate around concepts or communicate quickly. We say this is an administration that’s in the business of being in business and that’s just a, there’s no opinion or or judgment one way or the other. It’s just a, it’s just a statement. What this environment is Also, we also came up with something that we thought was just made us chuckle. One, like it’s important to have a little bit of sense of humor. We found our investors actually do read the materials very closely and they tend to have a sense of humor, which is good. But we created this thing, we called the one big beautiful chart and we just said, you know what they really need, they need rates to get down and they needed to come down a lot more than what the market and the curve has already priced in because of how much debt the country has, what it costs, what they want to accomplish.
[00:22:08] Matt Cherwin: So here’s what they need to accomplish and they’re gonna do everything they can to, so, you know, we construct portfolio, we have a, we have an investment thesis, we have a narrative. Everything we put in the book has to fit that narrative has to contribute to what we’re trying to achieve. Has to be the best version of that or has to protect us from what could go wrong. So getting back to your question a little bit, we think it’s a very business forward environment, business forward administration. We think that it is one that needs rates to come down. We are going to have a new fed chair in the middle of June and there he’ll say all sorts of things in the confirmation hearing, but really it will be a catalyst potentially for change in the middle of the year. And then we have a bias within markets to strip back some of the layers of, of regulation and away from whether you support that or not, I can tell you ’cause I’ve been on the other side of it, the layers of process and bureaucracy and spending your time back solving instead of what could we do better.
[00:23:14] Matt Cherwin: When you change what your goal is and how you’re pointed, you’re gonna get different results. We think that combination is spinning flywheels in the market now that in our opinion people are just, they’re underestimating the power of some of these flywheels.
[00:23:31] Barry Ritholtz: Huh, really, really interesting. Last question before we talk a little bit about Merrick. In the old days, and I was never a big believer in this, but everybody else was, there was some constraints on deficits and ongoing government debt. ’cause the bond vigilantes would punish you. The bond vigilantes seem to have disappeared in part replaced by the stock vigilantes who, any policy they don’t like, they just sell off until they have their hissy fit, until they get their way. And then, okay, thank you very much and we’re off to the races again. What do you think of the, you know, eighties, nineties era bond vigilantes? Is that just ancient history? There’s no discipline on deficit spending anymore or, and by the way, I think deficits are not all that relevant. Look at Japan, look at the US history. We’ve been warned about deficits and they haven’t caused much of a problem, most of this history. Yeah,
[00:24:31] Matt Cherwin: I mean look, I love the term and I think we’ve seen some of those episodes last year we saw around the whatever we call liberation day in April, like there were a couple days where treasuries and mortgages said like, enough, okay, that’s it. And we’re either going to have one of those days where they are giving stuff away or you gotta pull back. And I think what we saw was the administration did pull back. So I think in some level it’s still there. But part of what we do at Merrick and what influences our thought process is big parts of this have been really broken down. The markets are so big now that it’s been broken into specific functions, like people have a thing to do and they do that in a narrow mandate. We have a more flexible mandate to us, the products, their widgets, their tools in the toolbox for us to achieve our goals and our investment thesis and the portfolio risk and construction and diversification that we’d like to have.
[00:25:33] Matt Cherwin: But the markets are hyper specialized in very, very large markets. So you get some of those episodes where it’s like, oh, crowded trade, we gotta get out. I think the question of does the administration react to the markets, does the markets react to the administration? It’s something that we’ve actually focused on quite a bit. We actually, you know, we wrote another piece in June of 2025 that we called the War Fed and it was just about what could happen. And we sort of went through to your point like the concept of risk-free rate and credit spread are completely intertwined and commingled now and they don’t exist separately. So I think that’s some of the concepts you’re getting at. Like, is this a problem for credit? Is it a problem for rates? Are those the same thing? Now one of the most interesting things, and I I would just say before we get back to your, your question is, what was really interesting observation to us was during the last government shutdown, whatever mini version of that we’re going through right now, it was almost in the data was not forthcoming and then vol went down.
[00:26:45] Matt Cherwin: So it was this sort of like a little bit like if we don’t know, maybe nothing’s happening, but what it also was, was a little bit to the, to what you were saying is when things were a little less hyper-focused, they actually were a little less jumpy around small moves. And that was a big takeaway, big takeaway for us. Hmm. It’s a big thing you’re gonna hear from Kevin Walsh. If he ends up in the chair seat, you’re gonna hear a long narrative from him for his time in that seat of we need to step back from the day to day and the minute by minute information and think about the big bigger picture and the trend and where we’re headed and be a little, be a little more forward looking. I think that’s the kind of guidance that you will get from that chair.
[00:27:34] Barry Ritholtz: Hmm. Really, really interesting. So, so let’s just start out with why you left the comfort of a big shop to have the headache of your own firm. What, what’s the El elevator pitch? What problem does merit capital solve that couldn’t be solved at a large Wall Street bank?
[00:27:54] Matt Cherwin: Look, I think quite simply, there are some things that banks can do and some things that banks can’t do. There are some things that they can do and that they don’t want to do. In my career, I’ve always been involved in these types of markets being rates, mortgages, securitized products, corporate credit, the equities related to that around it, these types of specialty finance operating companies. And always felt that when you have, when you can apply the various lenses to these products being the trader lens, the structure lens, the operator lens, you understand it better and you get the gearing and the pieces. And when you learn about the financial system that it sits within, then you actually can understand, but take advantage of the risk and return in a more elevated and efficient way.
[00:28:47] Barry Ritholtz: I wanna address that. Is it that the big firms, the bigger banks were risk averse and didn’t want to take advantage of it where they were prohibited on a regulatory basis or when they’re just doing their macro risk assessment, Hey, we’ll go this far but no further.
[00:29:04] Matt Cherwin: I, I think it’s even simpler than that. We look at the world through our lens. We look at the world through the Merrick lens of money, capital, credit, liquidity and regulation, which drives economies, markets and prices. That helps us understand the drivers of the capital markets that we sit within. Helps us understand monetary policy, housing, finance, commercial real estate, finance. Understand both the gearing of it, then you can look at something and you can say, okay, I’m looking at Citigroup, I could buy it, I could sell it, I could understand what they’re doing in the markets. They have a footprint in what that means for the markets. Do I wanna buy that? So like where are the flywheels? What does it spin to next? So everything we were doing was very much about what do we want to do because we see a very large addressable opportunity where we have a unique perspective, a defined lens, and a way of applying that to these big liquid markets that we think very strongly we can take advantage of in a way that people simply haven’t had the opportunity to learn about and to understand and apply to these products with the type of flexible mandate that we have.
[00:30:18] Matt Cherwin: Which boiled down means we look at the world a little differently. These are big addressable markets which have dislocations, volatility, and opportunity all the time. And we can use that combination to achieve what’s a very, very simple goal, improve the return a little bit while reducing the risk a little bit.
[00:30:38] Barry Ritholtz: That’s all anyone can ask for better returns at lower risk. I’m, I’m kind of fascinated by the overall Merrick investment philosophy we’ll get to, but let’s, let’s start with a little bit with structure. I think of you guys as an alt credit shop, but you also look a little bit like a multi-strat shop, like a, is it, so we’re kind of a hybrid, like tell us about the structure.
[00:31:05] Matt Cherwin: We just define what we do. Okay. We are who we are. We do it the way that we do. We run, we’re, right now we’re running a hedge fund which trades these products as like I said, tools in the toolbox as as widgets. We do it in one collaborative portfolio. So our setup, our structure, we’ve got an amazing team. We have specialists in rates, in mortgages, in non-agency mortgages and a BS in credit in CLOs. I am on the phone every day with traders and salespeople myself. We trade it as one book,
[00:31:42] Barry Ritholtz: One portfolio. So it’s really a multi-strat within a single expression.
[00:31:50] Matt Cherwin: It is what we think is the best expression of the trade.
[00:31:54] Barry Ritholtz: Well I shouldn’t call it multi-strat, it’s really multi-asset. It’s a variety of different credit assets all under one umbrella
[00:32:01] Matt Cherwin: Within our lane. Okay. Sticking to our knitting, what we believe we know very well, what we know we have a differentiated insight into and extracting from that. Okay. The team is phenomenal. They have a ton of buy-side and sell side experience. They work very well together. It’s very exciting to be, I mean, and additionally doing this together, like Derek and I doing this together, putting our name on the door like Merrick is Matt and Derek, right? Because we spent way too much time trying to think of what’s a clever name means
[00:32:40] Barry Ritholtz: They’ve all been taken. Good luck in New York,
[00:32:42] Matt Cherwin: You know, means, you know, alpha extraction in Sanskrit or some something, you know. And Derek’s wife one day was like, enough, it’s Merrick, Matt and Derek now go do some real work. And I think she said in a little bit more of a spicy way, but we were like, yeah, that could work. Alright, let’s do that.
[00:33:01] Barry Ritholtz: I, I think just a little footnote, if you’ve ever incorporated an LLC or any other entity in New York state, every Greek and Roman, god, every Babylonian god, every sebus na name, the creature from mythology, it’s either a fund or an LLC. Yeah. They’re all, they’re all taken. It’s astonishing.
[00:33:21] Matt Cherwin: But the real point I I, I wanted to make also that I don’t wanna lose is this was putting our name on the door. Okay, it’s our name, it’s our reputation ’cause and that really cemented it for us. That was something we really wanted. I took some time off and which was fantastic and I met some of the most amazing and interesting people in the world. When you’re unaffiliated, people speak to you in a different way. Huh. That’s interesting. Because they had no one to talk to. Okay. I sat down with the CEO of one of the world’s largest pension fund sovereign wealth funds. And we had, and I’d never met the person before, we had an hour long conversation because he just needed to talk to someone. And I learned a lot in that. And I met some of the most interesting people in venture cap, in alt, in private equity, et cetera.
[00:34:07] Matt Cherwin: And it was just more way of learning parts of the system. But it got to the point where after my, you know, academic wander through the wilderness, I was like, okay, you know what? ’cause at the time we had three teenagers living at home and it was an amazing time. I used to always say, you should be able to retire in your forties and go back to work in your fifties. Like that’s the way business should work. Obviously that’s a luxury that very few have, but I was getting to the point where I was like, okay, I feel great. I want to do this. I miss markets, I love this. I want to get back to it and I want to do it in the way that I want to do it. How
[00:34:41] Barry Ritholtz: Long of a gap was that between Jason
[00:34:42] Matt Cherwin: And that? Well, I took like about a year off. You know, it’s a, you know, it’s a riot. So in our deck we put a little timeline of my experience and Derek’s experience and just to help people understand who hadn’t met us, who we are. And at the very end I put, you know, this is my background, simple. I was here for 10 years, I was there for 16 years. And then we put like a level one year nugget on the end of the timeline that just said chilling. But no G, no G, just C-H-I-L-L-I-N. Right? I don’t remember,
[00:35:11] Barry Ritholtz: Which is a very un wall street sort of thing.
[00:35:15] Matt Cherwin: Well it was like our 900th version of the deck, right? And we were just getting a little punchy and we’re like, it made us laugh. Okay. Right. You gotta have a sense of humor. It made us laugh. So we were like, this is going in. Every investor brings it up, they bring it up and they love it. And you know what, to us it’s like, wow, you are reading every part of the deck. Right? And also, it’s nice to know you have a sense of humor, but getting back, getting back to it was like PE people,
[00:35:40] Barry Ritholtz: This is always shocking. People read the footnotes.
[00:35:43] Matt Cherwin: Oh yeah. That’s been a big learning for us. Yeah, they read it. So when we were doing all this, you know, my wife was like, yeah, why would you wanna do something for anybody else? And I thought to myself, exactly what are we gonna work hard at? What are we gonna make sure succeeds the thing that we put our name on the door, our reputation that we believe other people don’t get it, that we believe is the right way to approach these markets that we believe can extract from a setup is, which is one of the best that we’ve ever seen. So if you tick all those boxes, why would you do it for anybody else?
[00:36:24] Barry Ritholtz: Huh? Really, really intriguing. So it’s 2026. I’m legally obligated to ask how do you use artificial intelligence in research portfolio construction or operations at Merit Capital?
[00:36:37] Matt Cherwin: Sure. I would, I would sort of make two, two points. I’m an AI optimist, that’s not one of my two points. So that doesn’t count. We use it every day. We build stuff more quickly. We build our own tools and we build ’em more quickly than we ever could before. You know, the guys on the team, they’re building stuff at their desk in a week that would’ve taken a year Wow. To do somewhere else, literally. And I know because I’ve been in that, and then once you built it, it would’ve taken like six months to get approval to release it into your sys, et cetera. This is like Lightspeed versus what we used to do. Now, changing a little bit of how you frame that question, AI is a really, really interesting thing in financial markets as well. Okay? So I don’t think we’re there yet, but we’re gonna get to a place where people are using it for risk management, they’re using it for compliance, they’re using it for KYC. But put all that aside, the most interesting to me right now is we look at the AI CapEx boom and we say, here’s a product that is commercial real estate with securitization technology around it. You’re talking about where is it? Is it built? If not, how long is it gonna take to build it? Who are the tenants? How long are the leases? What are they paying? What’s it worth when it’s all done? Is there residual risk like you have in an auto lease?
[00:37:56] Matt Cherwin: Only some of it comes to the securitized market because it’s just not that, that market’s not big enough for it, right? So it comes to the corporate bond market. So that to us is like, that’s the type of opportunity that piques our interest where we say, this is something that looks like A, B, C, and it’s being wrapped up and put into a different market that is asking 1, 2, 3. And those are good questions, but it’s really like, put it all together, look at all the factors. What are the additional, are you getting more structure, are you getting less, are you charging for the risk? Are you paying away for it? So the AI CapEx boom to us is actually like a source of very cheap risk for us to look at. And each one has a little bit of different flavor and we’re very opinionated about which ones we like.
[00:38:45] Barry Ritholtz: Huh. It sounds, it sounds really fascinating. It also sounds like anytime there’s a novel area, the opportunity for mispricing seems to really,
[00:38:56] Matt Cherwin: There’s that, there’s that, we look at some of those first time issuers we have, like, we have some things in the book. We have something called the North Star Playbook, which is what are companies and bonds that have clear missions and objectives that they can execute on that are aligned with us with the instrument that we have or misaligned or that they’re not able to execute. But some of it, it’s actually not just about the novel structures. Let’s look at agency mortgage-backed securities. Those have been around for a long time, right? Okay. Couple weeks ago, tweet from the pre or whatever we call a, a post on truth social, right? 4:26 PM I’ve instructed my representatives to buy 200 billion of agency MBS boom bomb in the agency mortgage back market. This is a, there are, was it 12 billion, 12 trillion of these things outstanding in the agency. Mortgage market is 9 trillion, hundreds of billions of a trade every day. And that was a aftermarket post tweet that
[00:40:00] Barry Ritholtz: Set off. And
[00:40:01] Matt Cherwin: Do you do, when that happens, event, so then
[00:40:03] Barry Ritholtz: Are you out buying into that, that rise to take advantage? Are you, are you a price taker, a price maker? What are you doing when that that’s happening? It’s
[00:40:12] Matt Cherwin: Both. We look instantly at like, what does this mean? What was our expectation? Now in that instance, we expected the GSEs who will be the one to actually buy it. We expected the GSEs to be buyer. I think our view was a little bit at the high sider outta consensus even. We thought this is gonna be a support mechanism for this market over the course of the year. Fannie and Freddie are gonna buy a lot of this
[00:40:32] Barry Ritholtz: Stuff, assuming they haven’t already started two 10 million.
[00:40:34] Matt Cherwin: Well, they have been, and that’s a great point. They had been, but buying 200 billion with like an aftermarket tweet and nobody knew like, is it gonna be 200 and then another 200? Are you gonna start buying? You gonna buy 40 tomorrow? How’s this all gonna work? This exceeded even our expectations. And you saw right away, I think we were positioned for that type of event. We were positioned to take advantage of some of the policy risk as opposed to get hit by some of the policy risk. You could see that there was a massive short covering rally right after that. And you could see that that wasn’t necessarily people’s expectations in how they were, how they were set up for it.
[00:41:14] Barry Ritholtz: I, I have, I have a mortgage related question to this. Okay. But I’m gonna save it to the next segment. Coming up, we’ve continue our conversation with Matt Gerwin, co-founder and chief investment officer of Merrick Capital, discussing credit and risk in today’s markets. I’m Barry Riol, you’re listening to Masters in Business on Bloomberg Radio.
[00:41:48] Barry Ritholtz: I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Matt Gerwin, co-founder and chief investment officer of Merrick Capital. Previously he spent 25 or so years running credit and various types of risks at JP Morgan Chase and Citigroup. So we were talking earlier about the Trump tweet directing the GSEs to buy $200 billion worth of agency paper. You would’ve thought that should have sent yields plummeting and mortgage rates down, which would stimulate the housing market. I assume part of the motivation for that tweet and for that purchase. What, what’s going on in that market and why does it seem so difficult to drive rates lower?
[00:42:36] Matt Cherwin: Right. That’s a great question. And as silly as it sounds like 200 billion, it’s just not enough
[00:42:41] Barry Ritholtz: Pocket cash, right? Walking around money,
[00:42:45] Matt Cherwin: That’s one way. I
[00:42:46] Barry Ritholtz: Mean in a $12 trillion market, sure. 12 trillion, it’s not even 1%.
[00:42:50] Matt Cherwin: Yeah. If you’re, if you are, if you’ve got 35 trillion in treasuries, outstanding and yeah, yeah, it’s a big number and it moves the needle. But what they, they really want to move it. They keep it there. Like that’s a little bit of the hard part because don’t forget that the Fed owns 2.2 trillion, so they’re gonna buy 200 billion. Didn’t give a lot of information. And that sort of helped them in that moment. The lack of information after probably led some of it to kind of like bleed out and unwind a bit. But the Fed owns 2.2 trillion and those are paying off and that’s approximately 180 billion a year. So then you start to think about like, well if the rate moves and mortgage prices go up, or some of the money managers going to sell a a hundred billion over time and do you kind of neutralize it?
[00:43:43] Matt Cherwin: So I think it’s helpful. It’s indicative, here’s the real takeaway for us. Okay, so at that moment it’s how do we trade this? What’s the price? What’s the next step? But then we’re really thinking from there, like what does this mean? What’s going to happen next? And sort of coming full circle, what it really does is show you how hard they’re gonna try to drive the mortgage rate down to drive rates down overall to sign up for an agenda and a plan to get rates down. Okay. So some of it is what do we do in that specific market? And some of it is, how’s it informing our view of the bigger picture.
[00:44:23] Barry Ritholtz: So you guys have two i i, I don’t wanna say conflicting, but somewhat different risk factors you’re juggling with, obviously when you buy paper you’re thinking long term and we wanna watch this play out to our broader thesis, but at the same time you’re actively trading on the short term. How much do these complement each other? Or do you ever find yourself long in one duration of the portfolio and short in another? How do you, how do you balance this out?
[00:44:55] Matt Cherwin: Yeah, I mean we have longs and shorts across the book within mortgages within credit we, there’s we’re, you know, long what we like and short what we don’t to keep it super simple or long, what helps contribute to our thesis or prote and vice versa. And you know, protect the convexity profile that we’re looking to achieve. We are, we trade every day. We are active in these markets. It’s part of more of a sort of a medium term thought process, how they’re gonna play out. But every day is iterating on that. Is this still what we think? Are we positioned with the best version of it? Do we have the bonds that are going to contribute to what we are trying to achieve? Like right now we’re very focused on the flywheels that exist within financing markets. And if you think about what does that mean?
[00:45:46] Matt Cherwin: Okay, so rates come lower, we talk, we rates go lower. We talked about that a little bit, but credit spreads are also really tightening. And when rates are lower and credit spreads are tightener tighter, your cost of borrowing has gone down. Means you can refinance all sorts of assets. It means some assets are even at that point in time worth more valued highly. Now that it’s worth more, you’ve got a lower LTV loan that you could take out an even tighter credit spread on. And how did these spin and what is it? So this is very much what we’re thinking about now. I think the market completely underestimates the power of those flywheels and what it can be achieved. So we, that is one of, we look at our portfolio and say we want to have about 20 trades in it. And the trade is not one line item.
[00:46:33] Matt Cherwin: A trade could be 30 line items, but the flywheel is a trade. It’s a little bit of a, maybe even a bigger higher order one. But we look at what is happening at that moment. Is there something to take advantage of? But also what are the ripple effects of what’s happening in that moment? And what does the market need to do? What is it going to do? Does it understand this? And then we unpack it and say like, where, where’s the opportunity? So coming back to what we talked about, we believe, when you look at the world through this lens, we look at markets through the Merrick lens that the lack of connections made through these markets and the lack of extracting from some pretty obvious pockets are an opportunity. And I would like we talked about to improve your return and reduce your risk.
[00:47:26] Matt Cherwin: And it’s a process. So it’s just as much a process in a machine through which you’re extracting alpha from from the market. We have our views, we hope to be right. It’s also, it’s a process through which you work through these markets that you extract all the time. And the mandate is pretty clear. Like, as I think of it, the mandate’s very clear. You need to make money when markets go up and you need to make money when markets go down every day, every month, every quarter, every year. And you probably won’t. But that’s the mandate. That’s what, and that’s you’re going for. And it’s, it’s quite simple when you frame it out that way. You
[00:48:04] Barry Ritholtz: Mention in 2019 there was a sea change in how you perceived what was happening in the market and how different that had become. How does that affect how you look at and define risk? It, it risk definitions have obviously changed over your career, but 2019 was such a sea change. What’s different about managing risk today?
[00:48:27] Matt Cherwin: Yeah, I think, I believe managing risk at scale is a skill. Okay. You have your numbers and you want to know what those are and those are indicators and those are starting places. VAR is a number and a starting place and an indicator stress is un numbered DV oh one CS oh one, these are we, I like to look at the world in a stress-based framework and we create a bunch of different stresses. Some are quite simple. Rates go up, rates go down, credit crunch, a flight to quality. Some we had our little like, you know, we’re getting a little punch drunk. We have one we call QE forever and ever. And looking at these, it’s really about, like, it’s a starting place for a conversation. Okay. Because you do need to know where it’s coming from and what’s the attribution, what’s the return attribution, where’s it, where are you hoping it comes from and what’s the risk attribution and very importantly what could go wrong. Understanding that what you’re trying to achieve, but knowing where the exits are, like, I think it’s really like a philosophy to, to risk and to managing risk to make sure you’re pointed to achieve your goals while managing your risk properly and knowing what you would do if things changed. Right? You have a plan and then things change.
[00:49:49] Barry Ritholtz: Hmm. Really, really interesting. What, when you’re looking out at a variety of different opportunities, what do you think today presents the best risk opportunity looking at structured credit corporates relative value? What, what, what is really drawing your attention? Yeah,
[00:50:06] Matt Cherwin: We really thought that one of the places to extract from the flywheel is in securitized markets. Actually as an example, like we’ve been very focused on trophy quality office in gateway cities. And this goes back a little ways,
[00:50:20] Barry Ritholtz: These are the super A residential, yeah, commercial real co office
[00:50:24] Matt Cherwin: Commercial, right? So that all came to be from us pulling it, the thread of how the financial system works. We talked a little bit about the new Gs Cs and what you had was everybody was going back to work back to the office, but took longer than we kind looking back on it, that took a long time. The part of the financial system that was changing were those new Gs, CS, Apollo, Aries, KKR, Blackstone, BlackRock. And they were coming back to the office and they were growing and they were finding that two things. One, they needed nice offices to kind of, you know, get everybody where they want ’em to be. But also they were growing and they outgrew what they had and then they went looking for more. And what they found was there’s actually not that much trophy real estate out there. And so like our view on the evolving financial system led us to have very strong conviction about a supply demand imbalance in commercial real estate when applied correctly. And then we just looked for what’s the best place. And it’s tightened a lot, but actually it think it continues to and has been because it’s like the, it’s continued to be one to two steps behind the fundamentals. So what that really means, the way we think about, to wrap it up in a nutshell, this is a triple B bond that we think is a double a
[00:51:35] Barry Ritholtz: Hmm. Really, really in, because everybody’s painting with a broad brush of, hey, forget bs, even a buildings are 60% occupied in terms of staff, but
[00:51:45] Matt Cherwin: They’re not, they’re a hundred percent occupied with the waiting list.
[00:51:47] Barry Ritholtz: I mean in terms of staff returning to office. Yeah, so it’s fully leased, but the, what is it? Castle key cards are running 60% of pre pandemic levels in a lot of cities. But the a plus the bigger shops, the JP Morgans, they want everybody back in the office, as does Goldman Sachs, as does a lot of these places. And they’re all in trophy properties.
[00:52:08] Matt Cherwin: And it’s not just New York, it’s Miami, it’s actually San Fran has come a long way. There’s certain buildings there that we like. We actually, I would say a little bit outta consensus, we like DC certain po not the government buildings, but nice offices, like we said, this is administration that’s in the business of being in business, which means you gotta go see ’em and make your case. You want to get some business done, which means you need lawyers with a nice conference room that need a decent office and et cetera, et cetera. I mean, like, it sounds a little glib, but it’s
[00:52:37] Barry Ritholtz: True. It’s the cost of doing business. It’s
[00:52:39] Matt Cherwin: True. Yeah, absolutely. And so you can see there are certain companies that are buying buildings, knocking them down in DC and building brand new ones. And there are buildings that are being taken offline to convert to resi. By the way, everything we wrapped up in what we said, the conversion from office resi is actually spinning faster now in dc some buildings are being con and just outside DC some buildings are being converted to data centers. Interesting. So actually like interesting stocks being removed all the time anyways, it’s just an example of how, like we’re pulling on threads and we’re finding where we can best take advantage of it and like what are the next couple steps? And ultimately we’re looking for what’s something that’s already gotten better except the price hasn’t changed yet.
[00:53:22] Barry Ritholtz: Huh? That, that’s really, that’s really interesting. You, you’ve mentioned stress scenarios a couple of times. We know that correlations have a tendency to go to one and liquidity disappears.
[00:53:35] Matt Cherwin: Well, I think I’ve seen that personally, right? Liquidity enough times over your career liquidity disappears. Yeah, I think I would just wrap that up. We, I make two comments to people. I say like, one, you don’t go outta business ’cause of your assets, you go outta business because your liabilities.
[00:53:49] Matt Cherwin: And when you start looking at that side of the balance sheet first, then you understand things a little bit better. And then also, you know, with, with my traders and all the people I work for, and it’s really great. ’cause some of the people I hired a long time ago, they’re MDs at places now. They’re all, it’s, I actually take a lot of pride in the people I’ve worked with who have gone on and done fantastic things. I really, really hate the phrase money. Good. Okay. I don’t think anybody should be allowed to say it. It is this like false crutch. I also, in many, many conversations have said to people, I think you’re right. In fact, you’ve convinced me, I believe you are right. I’m just saying, you know, you’re gonna get fired long before we know the answer to this question. Okay, let’s take everything we thought, everything we’ve known, and let’s put it into the context of how do we apply this in markets? What’s gonna happen, what’s everybody else doing? And how do we take advantage of that?
[00:54:40] Barry Ritholtz: Huh? Really, really fascinating. Last question before I get to my favorite questions, what do you think investors? I
[00:54:47] Matt Cherwin: Thought those were your favorite
[00:54:48] Barry Ritholtz: Questions. Oh no, though you’ll, you’ll, oh, okay. You’ll see the favorite questions. All right. What do you think investors in the credit and alt space are not talking about, but perhaps should be? What topics, assets, geographies, data points are getting overlooked, but really shouldn’t.
[00:55:05] Matt Cherwin: Yeah, so it’s a great question. We touched on a little bit. They’re underestimating the power of this flywheel. Like with, with the background I’ve had, and we’ve talked about and I’ve seen a lot of things blow up. Like we could come up with a lot of examples of things that could go wrong. I think they’re underestimating the things that could go right or what the power of financing and the mechanics around financing and the provision of liquidity and credit, credit spreads when they’re good and when they’re tight and when the machine is flowing. What that financial engineering can really do to both un recover value and create value. I think they’re underestimating. Huh? Really, really. The other quick thing is in the middle of the year, if Kevin Wars ends up sitting in that seat, and if we get a little bit of the, the setup that he’s looking for. He’s gonna change everything, right? So he believes we’re gonna have a big productivity dividend from ai, and we’re gonna have a big productivity dividend from deregulation. And then that would allow you to have lower rates and a smaller Fed Balance sheet at the same time. And if he gets a little bit of what he needs to craft that argument, we’re gonna have a very different second half of 26th than the first.
[00:56:21] Barry Ritholtz: Huh. Really, really interesting. All right. Right. Let’s jump to our favorite questions, our speed round. We’ll get you guys outta here at a reasonable time. Starting with, who are your mentors who helped shape your career?
[00:56:33] Matt Cherwin: Oh, I’ve worked for some pretty amazing people, and I tried to learn from everyone. I’ve just had the, the bosses that I’ve had are, you know, legends in this industry, whether it’s Bruce Richards, T and Perlow. Oh, Jimmy DeMar, Ziems, Daniel Pinto. I mean, these are guy, these are people who defined these markets. And they all had a huge impact on my career.
[00:56:56] Barry Ritholtz: Huh, really interesting. Let’s talk about books. What are you reading now? What are some of your favorites?
[00:57:02] Matt Cherwin: Oh, you know, but like I am in front of a computer screen and reading so much, and I read so much analytics, research, et cetera. When I get home, it’s a little bit more like, hang out with my wife and kids. And it’s a little tv.
[00:57:14] Barry Ritholtz: Well, that’s my next question. What are you listening to or streaming? Oh, give us your favorite next. Netflix, Amazon Prime, whatever.
[00:57:22] Matt Cherwin: I will watch pretty much anything. Taylor Sheridan. You know, like
[00:57:26] Barry Ritholtz: We spent season two of Landman. It’s so good. Like
[00:57:29] Matt Cherwin: Landman, all the Yellowstones, everyone. 19 80, 18, 23, 19. All of those lion, any of those, I’m suckers.
[00:57:36] Barry Ritholtz: Linus was also great. This should be a new season of that coming out one of these days.
[00:57:41] Matt Cherwin: Yeah, there is. I mean, I think I’ve watched both seasons like a hundred times.
[00:57:45] Barry Ritholtz: Final two questions. What sort of advice would you give to a college grad interest in a career in investing, credit trading, what have you?
[00:57:54] Matt Cherwin: I just think it’s not, you know, it doesn’t have to be a commitment for life. Just look at it as what’s something I’m interested in being interested in. I think you can pick the kind of people you work with and you want to be around good people who will teach you, who will support what you’re doing. And just say, I’m gonna give this a spin for three to five years, and if I like it, I love it, maybe I’ll sign up for another five. But you know, you have an opportunity to try something out and see if it’s for you.
[00:58:22] Barry Ritholtz: And our final question, what do you know about the world of trading credit, investing in alternative sources of, of liquidity and other products that would’ve been helpful 25 or so years ago when you were just getting your legs on? Do you
[00:58:38] Matt Cherwin: I wish I knew a fraction of what we are applying at Merrick. Any point before we did this, if I knew a drop of what we’re doing when I sat in other seats. Yeah, I’ll put that all in the I wish I knew bucket.
[00:58:55] Barry Ritholtz: Really, really absolutely fascinating. Matt, thank you for being so generous. Thanks for having me with your time. We have been speaking with Matt Sherwin. He’s co-founder and chief investment officer of Merri Capital. If you enjoy this conversation, well be sure and check out any of the previous 600 or so we’ve done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, YouTube, wherever you get your favorite podcasts. I would be remiss if I didn’t thank the correct team that helps us put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer. I’m Barry Ol. You’ve been listening to Masters in Business on Bloomberg Radio.
~~~
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Damage from the June war which lasted 12 days, in Bnei Brak, Israel. via Reuters.
Site of airstrikes on an oil depot in Tehran, AFP/Getty Images
Fresh US-Israeli strikes on Tehran.
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