![Andrew Milgram - Full-Contact Capitalism - [Invest Like the Best, EP.436]](https://s3.castbox.fm/a8/5e/1a/199eca3cee62a6821f2bd689dcc6304765_scaled_v1_400.jpg "Andrew Milgram - Full-Contact Capitalism - [Invest Like the Best, EP.436]")
Andrew Milgram - Full-Contact Capitalism - [Invest Like the Best, EP.436]
1Digest
Andrew Milgram of Marblegate Asset Management discusses the K-shaped economy and its impact on the middle market, characterized by declining EBITDA, margins, and cash flow. He details Marblegate's distressed investing approach, focusing on direct sourcing of deals from regional banks and active participation in both financial and operational restructuring. The podcast highlights Marblegate's investments in New York City taxi medallions (including the research involved and subsequent public offering) and Employee Retention Tax Credits (ERTCs). Milgram shares insights into building relationships with banks, negotiation principles, and the challenges and rewards of distressed investing. He expresses concerns about the private credit market, particularly the prevalence of low-quality loans and the lack of critical thinking in prevalent investment strategies. He also discusses his family background, connecting his personal experiences to the broader theme of the American dream and its challenges in a K-shaped economy, and offers his perspective on the future of asset management.
Outlines
Introduction and the K-Shaped Economy
The podcast introduces Andrew Milgram and his firm, Marblegate Asset Management. Milgram introduces the concept of the K-shaped economy, highlighting the disparity between thriving and struggling sectors of the economy, particularly within the middle market. He emphasizes the decline in middle-market EBITDA as a key indicator.
Data on the Middle Market and its Decline
Milgram explains his research using anonymized data from Rapid Ratings, focusing on the U.S. middle market (companies with $100-$750 million enterprise value). The data reveals a significant decline in EBITDA, margins, and cash flow in the middle market compared to publicly traded companies, highlighting the challenges faced by these businesses.
Ownership, Causes, and Future of the K-Shaped Economy
Milgram discusses the ownership structure of middle-market companies (families, smaller sponsors), the causes of their decline (market power of larger companies), and potential future scenarios, including a prolonged period of restructuring or a sharper credit contraction.
Distressed Investing and Marblegate's Approach
Milgram defines distressed investing, emphasizing the importance of active participation in both financial and operational restructuring. He describes Marblegate's focus on the middle market and their direct sourcing of deals from regional banks.
The New York City Taxi Medallion Investment
Milgram recounts Marblegate's investment in New York City taxi medallions, highlighting the initial skepticism, the extensive research conducted (including Milgram becoming a taxi driver), and the strategic acquisition of a large portfolio of loans and medallions.
Taxi Medallion Investment: Current Status and Future Outlook
Milgram discusses the recent public offering of Marblegate's taxi medallion operation, explaining the rationale behind the decision and the long-term prospects of the asset class in the context of autonomous vehicles.
Key Components of Interfacing with Banks and Negotiation Principles
Milgram shares insights into building relationships with banks, emphasizing the importance of understanding their needs and constraints, driven by regulatory considerations. He outlines key negotiation principles, including respect, transparency, and a reasonable pace.
Employee Retention Tax Credit Investment
Milgram describes Marblegate's investment in Employee Retention Tax Credits (ERTC), explaining the opportunity arising from the CARES Act and the IRS's slow processing of claims. He details their strategy of purchasing these credits at a discount and the risk mitigation measures implemented.
Challenges, Motivations, and Formative Experiences
Milgram discusses the most difficult aspects of distressed investing, the human element involved, and his personal motivations. He reflects on formative experiences from his childhood, particularly the loss of his father and the impact it had on his development of agency and problem-solving skills.
Family Background and the American Dream
Andrew recounts his family's history, including his mother's experiences in Baghdad and his grandfather's immigration journey. He connects this personal narrative to the broader theme of the American dream and its challenges in the context of a K-shaped economy.
Investing Styles and Market Concerns
Andrew discusses his unique investment approach, contrasting it with prevalent "lazy" strategies. He expresses concerns about the CLO market's reliance on diversification and over-collateralization, and the productization of investment decisions, leading to a lack of critical thinking.
Private Credit Market Analysis
Andrew analyzes the private credit market, highlighting the impact of 2011's Guidelines on Leveraged Lending. He points out the high percentage of low-credit-quality loans and the manipulation of default rates, advocating for a focus on waiver and amendment rates.
Private Equity and the Future of Asset Management
Andrew shares his perspective on private equity, differentiating between value-based investors and those who are merely financial traders. He discusses the future of asset management, emphasizing the need for partnership models, exploring retail channels, and adapting to change.
Keywords
K-shaped economy
An economic recovery with uneven growth, creating a gap between thriving and struggling sectors.
Middle-market distress investing
Investing in financially troubled mid-sized companies ($100-$750 million enterprise value).
Distressed debt
Debt issued by financially struggling companies.
Operational restructuring
Improving the operational efficiency of a distressed company.
Variant perception
Identifying overlooked investment opportunities.
Negotiation in distressed situations
Reaching mutually beneficial agreements in challenging circumstances.
Employee Retention Tax Credit (ERTC)
A refundable tax credit for businesses retaining employees during the COVID-19 pandemic.
CLO (Collateralized Loan Obligation)
A structured financial product backed by a portfolio of loans.
Private Credit
Lending outside the traditional banking system.
Value-Based Investing
Investing focused on undervalued assets and operational improvement.
Q&A
What is the key difference between Marblegate's approach to distressed investing and that of larger firms?
Marblegate focuses on the under-invested middle market, sourcing deals directly and actively participating in both financial and operational restructuring.
How did Marblegate's investment in NYC taxi medallions demonstrate their investment philosophy?
It showcased their thorough research, identification of undervalued assets, and active management through operational improvements and negotiations.
What are the biggest challenges and rewards of distressed investing?
Challenges include complex human dramas and significant risk; rewards include high risk-adjusted returns and solving complex business problems.
What are your biggest concerns about the current state of the investment market?
A lack of critical thinking and active engagement, particularly in CLOs and private credit, and the widening gap between the haves and have-nots.
How do you see the asset management industry evolving in the future?
A shift towards partnership models, increased access to retail capital, and a focus on product design innovation.
Show Notes
My guest today is Andrew Milgram. Andrew is the founder of Marblegate Asset Management, an alternative investment firm that invests in credit opportunities and special situations. He joins me to discuss his unique approach to distressed investing in the middle market, revealing how middle market EBITDA has declined 20-25% since 2019, creating what he calls the "K-shaped economy." His investment stories are legendary, particularly his $600+ million bet on NYC taxi medallions, which we go into in great detail. We discuss Marblegate’s approach to negotiation, sourcing deals directly from hundreds of regional banks, and understanding the human element in distressed situations. Please enjoy this conversation with Andrew Milgram.
For the full show notes, transcript, and links to mentioned content, check out the episode page here.
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This episode is brought to you by Ramp. Ramp’s mission is to help companies manage their spend in a way that reduces expenses and frees up time for teams to work on more valuable projects. Go to Ramp.com/invest to sign up for free and get a $250 welcome bonus.
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This episode is brought to you by Ridgeline. Ridgeline has built a complete, real-time, modern operating system for investment managers. It handles trading, portfolio management, compliance, customer reporting, and much more through an all-in-one real-time cloud platform. Head to ridgelineapps.com to learn more about the platform.
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This episode is brought to you by AlphaSense. AlphaSense has completely transformed the research process with cutting-edge AI technology and a vast collection of top-tier, reliable business content. Invest Like the Best listeners can get a free trial now at Alpha-Sense.com/Invest and experience firsthand how AlphaSense and Tegus help you make smarter decisions faster.
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Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com).
Show Notes:
(00:00:00 ) Welcome to Invest Like the Best
(00:04:58 ) Understanding the K-Shaped Economy
(00:07:08 ) Middle Market Challenges and Data Insights
(00:16:56 ) Distressed Investing Explained
(00:25:06 ) The Taxi Medallion Investment Story
(00:46:46 ) Navigating New York's Taxi Medallion System
(00:47:17 ) Building Relationships with Regulators and Unions
(00:50:22 ) Taking the Taxi Operation Public
(00:51:26 ) The Future of Autonomous Vehicles and Medallions
(00:54:30 ) Investment Strategies and Risk Management
(00:58:41 ) Negotiation Principles and Human Drama
(01:11:55 ) Personal Reflections and Formative Experiences
(01:17:22 ) The State of the American Economy
(01:23:29 ) Insights on Private Credit and Equity Markets
(01:30:39 ) Future of Asset Management
(01:33:16 ) The Kindest Thing Anyone Has Done For Andrew
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Table of contents
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