Marc Lasry is the Chairman, Chief Executive Officer and a Co-Founder of the Avenue Capital Group. Distressed investing has been the focus of his professional career for over 30 years.
Marc Lasry’s Interview On DD
EVALUATION (EV): Marc Lasry, thanks for taking the time to sit down with us. You started out at New York Law School. How did you first get into distressed debt investing?
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Marc Lasry (ML): Well, when I was in law school I actually didn’t think I was going to be doing investments. At that point I thought I would be a tax lawyer. I ended up clerking for the Chief Bankruptcy Judge in the Southern District. From there, I ended up working for a bankruptcy law firm, and then, from there, I got involved on the investment side. So it took a few steps to get into investing.
EV: You managed money for Robert Bass for a few years before going off on your own – how was that experience and what did you learn there?
Marc Lasry: I managed money for the Robert Bass Group from 1988 to 1990. It was a phenomenal experience. It was the first time I was actually running money in the context of a portfolio. There, I got to meet a lot of different individuals and look at a number of different companies. It was also a time when the U.S. bankruptcy laws were changing. Moreover, peoples’ view of bankruptcy was changing. At that time, most people wanted to stay away, whereas today people view bankruptcy as an opportunity.
EV: From there you went on to start Amroc Investments and Avenue Capital Group. Could you speak a bit about the process of starting up a fund, raising money, etc.?
Marc Lasry: I don’t think the process of starting up a fund has really changed all that much. At the time when you do it, everyone always tells you how difficult it is, how impossible it is. And the reality is that few people actually end up succeeding. So every person who starts a fund believes that they’ll be the exception. And frankly at that time I did too. Ultimately, though, the way that you grow and succeed is to put up good numbers. And if you can do that, then I think things generally take care of themselves.
EV: In distressed investing, you are inherently buying things that are broken, unloved, or unwanted – is it important to have a contrarian’s mindset to be successful in this business?
Marc Lasry: It’s not necessarily a contrarian’s mindset per se. That said, we are buying things, or investing in situations, that other people don’t want to invest in. The goal is to buy from people who are non-economic sellers. And ultimately, your credit work or credit analysis needs to be a little bit better than someone else’s (either the sellers or other buyers). On the distressed side, there’s a bias against companies that are in trouble. Here’s an example: if someone says they’re buying a bond at par, the follow up question is, “what’s the coupon?” If some says they’re buying a bond at 60, the follow up question is, “why not 50?” People tend to have a natural bias against something that has traded down significantly.
If someone says they’re buying a bond at par, the follow up question is, “what’s the coupon?” If some says they’re buying a bond at 60, the follow up question is, “why not 50?” People tend to have a natural bias against something that has traded down significantly.
EV: How has the distressed investing landscape changed since you first got started in the mid-1980s? Given the influx of capital into the space, it is more difficult to find attractive risk-adjusted returns today?
Marc Lasry: Frankly I think it’s always difficult to find returns – it’s always hard to make money. And everyone believes that the current environment you’re in is somehow harder than it was in the past. I’m not sure that’s always the case. I will say, however, that the biggest difference between today versus when we first got started is that back then the risk free rate was somewhere between 4% and 8%. Today, the risk free rate is 25 bps. So, for that reason, today is actually a pretty difficult time because people expect you to make 8%-12%, which is about 40x the risk free rate. Compare this to say ten years ago, when if you made just 5x the risk free rate, that was a 20% return.
See full Marc Lasry Interview On DD: NYU Stern May Issue in PDF format here.