Mitch Julis: Credit Investing in Covid, Complex Systems, and How Structure Determines Behavior

Mitch Julis is the Co-Founder and Co-Chairman of Canyon Partners, one of the largest and best-performing multi-strategy hedge funds in the world. If you listen to the end of our interviews or visit our website, you’ll see that Policy Punchline is generously funded by the Julis-Rabinowitz Center for Public Policy and Finance (JRCPPF) at Princeton University. The Center was created by Mr. Julis and named in honor of his father and mother. After 150 episodes, we’re finally having Mitch on the show, and everything is truly coming back in full circle here. 

We start the interview with an introduction to Canyon Partners and Mitch’s background. “You can’t be a great equity investor without being a solid credit analyst” – Mitch gives a detailed overview to credit investing, Canyon’s various strategies and funds, and his overarching investment philosophy. We also touch on many of the macro trends before and after Covid, the Federal Reserve’s “insurance policy” for financial markets with persistently low interest rates, the rise of SPACs and Bitcoin, the underperformance of value investing, whether the stock markets are in a bubble, and many more current event topics and beyond. 

One of the interview highlights is Mitch’s explanation of “reframing financial and economics analysis as political economy to understand how structure determines behavior and behavior determines structure in the capital markets.” To illustrate how to cope with complex situations, he brings up Canyon’s recent investment in AMC Theatres during the company’s struggle in the Covid pandemic, as well as their previous investment in Caesar Entertainment.

A recent book published in April 2021, “The Caesars Palace Coup: How a Billionaire Brawl Over the Famous Casino Exposed the Corruption of the Private Equity Industry,” by Sujeet Indap and Max Frumes talks about the Caesars Entertainment restructuring, which Mitch referenced a few times throughout the interview and recommends those who are interested to read more. 

Mitch also talks about how balance sheet dynamics can often provide a perspective on what we see in interest rates, risk premium, etc. and how they show up in the markets. He explains that it is important to realize that from a balance sheet perspective, there is a left side and right side, and there’s a feedback effect between how we finance at the micro/macro level and how we conduct businesses, and vice versa in how the configuration of a country and company would influence their capital structures. We reference the recent market incidents such as the Melvin Capital and Archegos blow-ups, where the balance sheets of a hedge fund like Melvin are very susceptible to exogenous shocks like sudden and sharp rises in stock prices, hence not suitable to engage in the kind of “trench warfare” with retail investors seen in the GameStop saga. 

The ultimate question seems to come down to the interconnectedness between the various balance sheets – is there enough distance between them, so that when a crisis does occur, we won’t have a severe cascading effect? Mitch talks about how he might approach answering this question and how to analyze balance sheet dynamics at large with references to his thinking in risks and uncertainties.

Disclaimer by Canyon Partners, LLC:

  • This presentation does not constitute an offer or solicitation to subscribe for or purchase any securities in any jurisdiction.

  • Certain information contained herein constitutes “forward-looking statements.” Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements.

  • Nothing contained in this presentation constitutes investment advice or offers any opinion with respect to the suitability of any security or asset class, and the views expressed in this presentation should not be taken as advice to buy, sell or hold any security or asset class.

  • Any representative investment or strategy described herein is for illustrative purposes to describe a type of investment Canyon either has acquired or, opportunity permitting, may acquire in the future. Such descriptions are summary in nature and do not purport to list all the salient features of the investment or the strategy described. There is no guarantee that similar opportunities will be available for a fund in the future, or that a fund will acquire further investments of the type described in such summaries.

  • Canyon has numerous other investments – successful and not successful. An investment profiled in this presentation may not be held by all Canyon funds. It is not known whether any position(s) currently held will be profitable when sold.

  • Past performance of an investment, strategy, or fund is not a guarantee of future results.

  • This presentation may contain confidential information and shall not be redistributed without the express written consent of Canyon Partners, LLC.

Mitch Julis

Mitch Julis

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