Episode 15

full
Published on:

11th Oct 2024

Sreeni Prabhu, co-founder, Managing Partner, Co-CEO, and Group Chief Investment Officer, Angel Oak Capital Advisors, LLC (Angel Oak)

Unlocking financial value through alternative credit is a central theme in this engaging conversation with Sreeni Prabhu, co-founder, Managing Partner, Co-CEO, and Group Chief Investment Officer at Angel Oak Capital. With a keen focus on the structured credit space, Sreeni discusses how Angel Oak, one of the largest securitizers of non-qualified mortgages in the nation, skillfully navigates market dynamics to create strategic long-term value for investors. He highlights the current opportunity in mortgage-backed securities (MBS), as inflation stabilizes and interest rates are expected to decline, presenting a historic chance to enhance fixed-income allocations. Furthermore, Sreeni elaborates on the burgeoning second lien mortgage market, emphasizing the significant equity homeowners possess and the untapped potential for strategic financing solutions. Through this episode, listeners will gain insights into the evolving landscape of fixed income and the innovative approaches that Angel Oak employs to meet the needs of both institutional and individual investors.

Sreeni Prabhu, co-founder, Managing Partner, Co-CEO and Group Chief Investment Officer of Angel Oak Capital, shares his insights on alternative credit and the unique opportunities within the non-qualified mortgage sector during his conversation with ATLalts host and creator Andres Sandate. Beginning with his personal journey, Srinivas recounts his transition from a tennis player in India to a prominent figure in finance, highlighting the importance of networking, resilience, and a willingness to pursue an unconventional path. He emphasizes Angel Oak's strategic positioning as a leader in the mortgage-backed securities market, particularly in non-QM loans, and how the firm's comprehensive investment platform creates long-term value for its clients.


As the discussion progresses, Sreeni delves into the current economic landscape, noting the potential for fixed-income investments amid declining interest rates and controlled inflation. He points out that mortgage-backed securities are trading at historically attractive spreads, presenting a compelling case for investors. The conversation underscores the significance of education in the financial sector, with Sreeni advocating for transparency and trust-building between Angel Oak and its clients. This commitment to educating advisors and investors is a cornerstone of the firm's strategy.


The episode also explores the emerging second lien mortgage market, where homeowners can leverage their home equity for various financial needs. Sreeni highlights the substantial addressable market, estimated at $1.6 trillion, and discusses how Angel Oak is prepared to meet this demand with innovative financial products. As the episode concludes, Sreeni shares his vision for the future of Angel Oak Capital, emphasizing the need for a patient, long-term approach to investing in the ever-evolving financial landscape.


Takeaways:

  • Sreeni Prabhu's journey from India to Milledgeville, GA to leading a $20 billion asset management firm is inspiring for anyone pursuing their professional and personal interests, regardless of industry or career.
  • Angel Oak's unique position in the mortgage-backed securities market offers compelling investment opportunities.
  • The firm emphasizes a long-term perspective, focusing on sustainable growth and risk management.
  • Understanding the second lien mortgage market can provide valuable insights for financial advisors.
  • Investing in non-qualified mortgages offers significant potential returns in the current economic climate.
  • Angel Oak's commitment to education and transparency enhances relationships with investors and advisors.

Links referenced in this episode:

Companies mentioned in this episode:

  • Angel Oak Capital
  • Angel Oak Mortgage REIT
  • SunTrust Bank
  • Washington Mutual
  • Fannie Mae
  • Freddie Mac
Transcript
Andre Sindate:

I want to welcome everybody to a very special edition of ATL Alts.

Andre Sindate:

This is your host, Andre Sindate.

Andre Sindate:

I am recording this here in Atlanta and I am joined today by somebody who there is a deep backstory to get into, but I want to welcome and allow him to give his backstory.

Andre Sindate:

Srinivas Prabhu.

Andre Sindate:

He goes by Srini.

Andre Sindate:

He is the co founder, managing partner, co CEO and group CIO at Angel Oak Capital, which is nearly a $20 billion asset manager, but really a big giant company in Atlanta.

Andre Sindate:

And he leads the overall investment strategy of the firm.

Andre Sindate:

He also is co pardon.

Andre Sindate:

He's also the CEO and president of Angel Oak Mortgage REIT, which is a New York stock exchange company.

Andre Sindate:

Ticker is a O M r.

Andre Sindate:

You can learn more about Angel Oak at angeloak Capital.com dot.

Andre Sindate:

There's a lot of great resources, some terrific content, educational resources.

Andre Sindate:

If you're an advisor that's already doing business with Angel Oak, you can see the territory map and the coverage.

Andre Sindate:

If you're an investor or family office and want to engage with the institutional team, Adam Beeler and a number of other guys over there are terrific.

Andre Sindate:

So lots of really great resources.

Andre Sindate:

That's a long introduction, Srini, but I want to welcome you to ATL Alts.

Andre Sindate:

I'm excited to have one of our local terrific firms that's just got a great reputation to ATL Alts.

Andre Sindate:

This is the first time we've had you on and the first time we've had a chance to allow Angelo capital to tell a story.

Andre Sindate:

So with that, sorry for the long winded introduction, but welcome to ATL else.

Srinivas Prabhu:

Thank you, Andres.

Srinivas Prabhu:

I appreciate it.

Srinivas Prabhu:

I really appreciate you having me on the podcast.

Andre Sindate:

Yeah.

Andre Sindate:

So first question is always the same, and that's tell us your backstory.

Andre Sindate:

How did you arrive at that long, terrific title that oversees $20 billion?

Andre Sindate:

Lots of strategies, lots of products.

Andre Sindate:

Tell us the backstory.

Srinivas Prabhu:

Thank you.

Srinivas Prabhu:

It was a different way to get here.

Srinivas Prabhu:

First part of my life.

Srinivas Prabhu:

I grew up in India, played tennis in India, and had an opportunity to come to the US to play college tennis.

Srinivas Prabhu:

So I had a little bit of a different path to come to the US and found a small school outside of Atlanta, did my undergraduate over there and was able to do my masters at Georgia State.

Srinivas Prabhu:

And tennis has played a big role in where I am today.

Srinivas Prabhu:

Even my first internship that I got at SunTrust bank, we were both familiar with the.

Andre Sindate:

We're both alums.

Srinivas Prabhu:

Yep.

Srinivas Prabhu:

I got my internship because the person who gave me the internship was also a tennis player and I didn't know much about finance.

Srinivas Prabhu:

I wanted to do it.

Srinivas Prabhu:

Few of the classes I took at Georgia State University, and I just happened to fall into a great seat with a great boss who actually, as a part of our form development, he now works with us at Angelo Capital, and he runs the financial strategy.

Srinivas Prabhu:

So, you know, as you know, having a good seat in your early stages of your career is big.

Srinivas Prabhu:

And suntrust.

Andre Sindate:

Yeah.

Srinivas Prabhu:

You have that quickly migrated, and I love the whole background of asset Pacific structures, you know, asset backed securities, but basically asset backed finance.

Andre Sindate:

Yeah.

Srinivas Prabhu:

And how in the US, you know, little differently than the rest of the world, how financing plays a huge role in every single thing that we do daily.

Srinivas Prabhu:

Right?

Srinivas Prabhu:

Yep.

Andre Sindate:

Everything.

Srinivas Prabhu:

Everything we do.

Andre Sindate:

Buying a car, getting a house, taking out a loan on your house, you know, I mean, it's everything.

Srinivas Prabhu:

And so I was in the early stages when there were not many players involved, learned a lot, and then went and became a portfolio manager.

Srinivas Prabhu:

Then I had an opportunity to go to Washington Mutual, as you know, the.

Andre Sindate:

Center of the crisis out in Seattle.

Srinivas Prabhu:

Yeah.

Srinivas Prabhu:

I was the head portfolio manager of the treasury bond portfolio, not the bank.

Srinivas Prabhu:

And by:

Srinivas Prabhu:

I can't tell you that I predicted that Armageddon that fall, but I clearly didn't.

Andre Sindate:

But you became bearish.

Andre Sindate:

And I want to stop there.

Andre Sindate:

There's some things we're going to circle back to on your background.

Andre Sindate:

We have an audience of advisors, family offices, institutions.

Andre Sindate:

Institutions.

Andre Sindate:

But we also have an audience that we target of folks that want to break into the industry, people that are in the industry, but want to one day run their own fund, they want to build their own company, they want to get on the buy side, if you will.

Andre Sindate:

So we're going to circle back to some stuff, and I don't want to cut you off, but there's a headline from Barron's.

Andre Sindate:

I would be remiss if I.

Andre Sindate:

If I didn't bring this up.

Andre Sindate:

And you can find this out there on Google.

Andre Sindate:

ectively a profile written in:

Andre Sindate:

You know your firm, Angelo Capital.

Andre Sindate:

We're going to talk about what you all do in the non QM, non qualified mortgage space, particularly in the residential mortgages.

Andre Sindate:

But the article says, and again, this is Barron's in zero six.

Andre Sindate:

You were running $25 billion bond portfolio at Washington Mutual, as you said.

Andre Sindate:

When, again, this is the author.

Andre Sindate:

When lax lending, iffy appraisals and general sentiment in housing was housing prices are going to continue to go up and you turned more bearish.

Andre Sindate:

And even despite the fact that other divisions within Washington mutual were churning out loans to arguably at the time, it's easier to look back some of those more iffy borrowers.

Andre Sindate:

And obviously we all know, those of us that were in the market or participated in the space know what happened in zero seven.

Andre Sindate:

omy, what we saw transpire in:

Srinivas Prabhu:

Yeah.

Andre Sindate:

hat you fast forward now from:

Srinivas Prabhu:

Yeah, no, it's, and I wanted to finish that.

Srinivas Prabhu:

we started Angelo Capital in:

Andre Sindate:

Okay.

Srinivas Prabhu:

And to get answer your point on being bearish in a few things.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

Look, as you said, a lot of people are not trying to do wrong things.

Andre Sindate:

Yeah.

Srinivas Prabhu:

You were in a lifecycle.

Srinivas Prabhu:

And I think what happened before the financial crisis was there was a big fight in almost all banks between business and credit.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

And when there were so much fees and so much commissions and so much profits that were generated, it is very hard to start us to stop a train that is going at full speed and whole infrastructure built around it.

Srinivas Prabhu:

I think that we as a general, uh, fixed income community and as a general Wall street committee just lost the plot.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

Yeah.

Andre Sindate:

And there were other forces.

Andre Sindate:

Right.

Andre Sindate:

Comment.

Andre Sindate:

We want to, we want to get into the micro as well.

Andre Sindate:

And, and we could talk macro, but um, I'll leave that to the Bloomberg articles and the Bloomberg conversations.

Andre Sindate:

What I, but, but you also had regulatory, uh, uh, stakeholders that were sort of promoting getting, you know, making credit more available.

Andre Sindate:

The government at the time, you know, that they were promoting credit, getting that first home.

Andre Sindate:

I mean there was a lot of moving parts, a lot of influence, quality of earnings and earnings on Wall street.

Andre Sindate:

That whole machine, I mean it's easy to look back and say this wasn't going to end well.

Srinivas Prabhu:

Yeah, yeah.

Andre Sindate:

It was a moving train.

Srinivas Prabhu:

Yeah, it was a fast moving train.

Srinivas Prabhu:

Yeah, it was, it was.

Srinivas Prabhu:

And we'll keep it macro.

Srinivas Prabhu:

And it was a combination of late nineties where banks realized that they could be efficient at managing their capital by originating any type of loan, consumer, mortgage, auto, credit cards and then using the securitization markets and then delivering it to a variety of, set of investors with different risk tolerances, right to a basic premise.

Srinivas Prabhu:

That's what it was.

Srinivas Prabhu:

If you want safety, you bought the most senior bond.

Srinivas Prabhu:

If you wanted risk, you bought the most junior bond.

Srinivas Prabhu:

And these assets then provided through the entire financial system.

Srinivas Prabhu:

So that was one thing that happened and allowed banks to create more lending, which probably created more growth in the economy.

Srinivas Prabhu:

So that's a positive.

Srinivas Prabhu:

has flourished over the last:

Srinivas Prabhu:

Then there was a government program to create housing more affordable, which allowed lower mortgage rates.

Srinivas Prabhu:

And that with the financing available, just created this own little velocity.

Srinivas Prabhu:

And then the third part was the concept that these mortgages and the way they were rated and the ratings created its own leverage in the system.

Srinivas Prabhu:

You put all that together, the base fundamentals of what was being done was not wrong.

Srinivas Prabhu:

It was the addition and the subtractions that happened afterwards.

Srinivas Prabhu:

And I would say from:

Andre Sindate:

Right, right.

Andre Sindate:

We call it addition subtraction here on ATL Alts because I want to keep it simple.

Andre Sindate:

With all due respect, a lot of people would call it engineering, they'd call it securitization.

Andre Sindate:

I mean, a lot of these things.

Andre Sindate:

But effectively, yes.

Andre Sindate:

What you're saying is we productized a 30 year mortgage, whether it was or we productized a non qualifying mortgage, we'll break that down and get into that.

Andre Sindate:

All of that is really important backstory for what we're going to get into.

Andre Sindate:

But I want to circle back more on the professional front.

Andre Sindate:

You talked about coming from Mumbai to play tennis.

Andre Sindate:

For those of the listeners that are in Atlanta and familiar with the south, they're going to know the community of Milledgeville.

Andre Sindate:

But for those that are, you know, not Milledgeville from Mumbai, describe that experience.

Andre Sindate:

And this is, this is also something I wanted to cover because those younger professionals, those people that are thinking, I want to work at a hedge fund one day, I want to work in alternatives, I want to work in private equity.

Andre Sindate:

And they're not, with all due respect, they're not at a target school.

Andre Sindate:

You know, they're grinding away, getting a business degree, finance degree, maybe they're starting a junior college.

Andre Sindate:

You know, you are now, you know, co CEO of a $20 billion asset management company.

Srinivas Prabhu:

Yeah.

Andre Sindate:

And you started out, and I looked this up just because I thought it was interesting, us news and world report, you know what they ranked your undergraduate alma mater regionally in the south, the 16th ranked school.

Srinivas Prabhu:

Yeah.

Andre Sindate:

So I don't say that to put you on the spot.

Andre Sindate:

I say that because I think there's a really powerful story in where you're at today.

Andre Sindate:

And I think we'd be remiss if we didn't allow you to talk more about that experience.

Andre Sindate:

Getting there, what you did when you got there, the tennis and, you know, maybe there's a nugget or two.

Srinivas Prabhu:

No, I appreciate it.

Srinivas Prabhu:

And look, it was, it's hard, right?

Srinivas Prabhu:

As you know, it's hard.

Srinivas Prabhu:

But, you know, the first thing I would, you know, it's funny now saying that if you can remember when I was applying to schools that, you know, it was not like you had a variety of computers sitting there.

Srinivas Prabhu:

You know, I had to go to this Us embassy which had a small library.

Srinivas Prabhu:

You had like couple of.

Srinivas Prabhu:

But you were really opening up.

Srinivas Prabhu:

I think it was the Peterson's guide of schools.

Srinivas Prabhu:

And you opened it up and he started randomly.

Srinivas Prabhu:

And I believe that the way they talked about Georgia College was that Milledgeville was a suburb of Atlanta.

Srinivas Prabhu:

And I can tell you folks, it is not a suburb of Atlanta.

Srinivas Prabhu:

Right?

Srinivas Prabhu:

Looks like.

Srinivas Prabhu:

Yeah.

Srinivas Prabhu:

So that was the first shock I had.

Srinivas Prabhu:

I walked in there and I think I went from 15 million people to 15,000 people.

Srinivas Prabhu:

So it was a culture shock.

Srinivas Prabhu:

My first breakfast was eggs and grits.

Srinivas Prabhu:

I'd never had grits before, but I loved it, by the way.

Srinivas Prabhu:

But I would tell you the community was phenomenal.

Srinivas Prabhu:

I mean, I never felt uncomfortable.

Srinivas Prabhu:

My experience, I was on a tennis team.

Srinivas Prabhu:

I had a great team from different parts of the world.

Srinivas Prabhu:

You know, I had to room with american students for first two years because of my scholarships.

Srinivas Prabhu:

So, you know, that was great.

Srinivas Prabhu:

I got to see people that I would never have seen if I had grown up in India.

Srinivas Prabhu:

Yeah, but, you know, getting back to your school, I mean, look, you know, we can all think about going to the top schools in the country, and there's a value proposition to that.

Srinivas Prabhu:

There's no doubt.

Srinivas Prabhu:

You create your networks, you create your.

Srinivas Prabhu:

And that's the hardest thing for, if I have to tell somebody is, you know, for you and me and others, like, the networking was just absent.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

When you come out of smaller schools, you just don't have that network.

Srinivas Prabhu:

That's right.

Srinivas Prabhu:

I think I tell that to all the guys here in the office and others.

Srinivas Prabhu:

Like we, you know, we've learned to, we've just, you know, you just learn to fight.

Srinivas Prabhu:

You just learn to compete with a very positive attitude.

Andre Sindate:

Yeah.

Srinivas Prabhu:

And you have to think about long term business.

Srinivas Prabhu:

And I think if you work on Wall street, sometimes your thought process is more short term.

Srinivas Prabhu:

So when you don't work there for some time, and nothing wrong in that, but it just happens to be where if you've not worked there, you know, our process is more long term, more relationship, but you have to compete.

Srinivas Prabhu:

I mean, these are not a lot of smart people in our business.

Srinivas Prabhu:

So small schools, regional schools.

Srinivas Prabhu:

Yes, you are starting behind, but I would tell everybody that does not mean that you can catch up much faster than people give themselves credit.

Srinivas Prabhu:

Yeah, well, you have to stay late.

Andre Sindate:

You got to know what you.

Andre Sindate:

Yeah, you got to know what you don't know.

Andre Sindate:

And you gotta.

Andre Sindate:

You got to kind of have that north Star, and like you said, you, you, you found yourself, you matriculated at SunTrust as a bank analyst.

Andre Sindate:

You're covering banks, and you had what is now a colleague as that terrific boss, I'm thinking, you know, you move up to the big city, you start that job, and all of a sudden, you become more fascinated, it sounds like, on this whole world of asset backed finance and mortgages and banks, etcetera.

Andre Sindate:

And then you're kind of off.

Andre Sindate:

And it's so easy for us today.

Andre Sindate:

Look, and say, let's just spend a minute on that, and then let's get to talking about XYZ.

Andre Sindate:

However, if you go and watch the video that you and Mike are featured on, on Angel Oak, I wrote this down.

Andre Sindate:

You want to build.

Andre Sindate:

You have built a company.

Srinivas Prabhu:

Yeah.

Andre Sindate:

You want to have relationships with borrowers.

Andre Sindate:

You want to have relationships with investors.

Andre Sindate:

You're an alternative fixed income manager, generating an income or building an income solution for retail and institutional investors.

Andre Sindate:

Now, I am sure that took some time to get to that.

Andre Sindate:

What we are, and that's what I want to transition to, because you spend time as a bank analyst at SunTrust.

Andre Sindate:

Then you said you moved out west to Seattle.

Andre Sindate:

You're at Washington Mutual.

Andre Sindate:

You're now more specialized.

Andre Sindate:

You're running a $25 billion portfolio.

Andre Sindate:

You see what's going on in the housing market.

Andre Sindate:

Talk to us about how you and your co founders, and now Mike, your co founder, co CEO, how did you guys meet?

Andre Sindate:

How did you pull this together at an awful time, broadly in the economy and in the market, to want to go start a company unless you know where the bad paper sits, perhaps.

Srinivas Prabhu:

So we knew all that.

Srinivas Prabhu:

We knew where the paper was.

Srinivas Prabhu:

You know, I had never started a business.

Srinivas Prabhu:

You know, to be fair, Mike Fearman, my partner, has always been an entrepreneur.

Srinivas Prabhu:

So, again, that's important here, because when you partner up with somebody, you know, you need to have some sort of an entrepreneurship and to be honest with you, some sort of a utopian view on the world.

Srinivas Prabhu:

Right?

Srinivas Prabhu:

Day to day is a grind.

Srinivas Prabhu:

So, you know, we got introduced by a common friend.

Srinivas Prabhu:

I wanted to come back to Atlanta.

Srinivas Prabhu:

I didn't know anything about Atlanta, to be honest with you, in terms of people over here, we thought we had this wrong idea that we could just start a firm, create a presentation, and raise institutional capital.

Srinivas Prabhu:

We were clearly wrong in our thought process.

Srinivas Prabhu:

But before that, when we met, honestly, we probably met for two, 3 hours, and it was never about just, we just clicked on starting a business.

Srinivas Prabhu:

I know, we knew we would buy bonds and we knew we had to go raise the capital we started.

Srinivas Prabhu:

It was just a part of, hey, do you want to do this long term, knowing that you're not going to see a return on your investment for years, a couple of years at least you're putting your own money in it, you know, interesting enough, I was also talking to a few folks from New York, and their common theme was, you cannot launch a fund without having at least $100 million of capital.

Srinivas Prabhu:

But my point was how, yeah, how are we going to get $100 million of capital?

Srinivas Prabhu:

The only way you can do it is institutions.

Srinivas Prabhu:

We probably, we started the firm, we put our first presentation together.

Srinivas Prabhu:

I told my wife, I'm going to leave Guamu and I'm going to take this risk.

Srinivas Prabhu:

She was in, without her, this would not have started, right?

Srinivas Prabhu:

She's like, all right, let's go take the risk.

Srinivas Prabhu:

And she came back to Atlanta.

Srinivas Prabhu:

But first three months was brutal because we had no institutional backing.

Srinivas Prabhu:

The world was changing by the minute at that point.

Srinivas Prabhu:

But then it gets back to us, right?

Srinivas Prabhu:

We thought that 100 million was a wrong way to go.

Srinivas Prabhu:

We could do this all day long and run out of time and effort and money.

Srinivas Prabhu:

So we went through, say, the next option and said, just raise singles and doubles and talk to people here in Atlanta.

Srinivas Prabhu:

in Atlanta called Coleberg's,:

Srinivas Prabhu:

We would wave to people.

Srinivas Prabhu:

Half of us thought we were crazy, majority thought we were crazy.

Srinivas Prabhu:

But we had a group of guys that gave us our 1st $10 million.

Srinivas Prabhu:

So that's how Angelo got started.

Srinivas Prabhu:

million fund in June of:

Srinivas Prabhu:

And the one thing we did for investors is, even though it was a hedge fund, you distribute cash flows on a monthly basis.

Srinivas Prabhu:

So they got to see that, hey, theres a mark to market element.

Srinivas Prabhu:

But hey, im getting my cash flow and they would come to our office, we would show them the bonds were buying and they would really look at it and say, oh, okay, how many people will need to default for you to lose your money?

Srinivas Prabhu:

they told more friends and by:

Srinivas Prabhu:

It's a pivotal point for us.

Srinivas Prabhu:

But:

Srinivas Prabhu:

We probably managed about $200 billion.

Srinivas Prabhu:

So our background, by the way, those individuals are still with us in some fashion.

Andre Sindate:

Exactly.

Andre Sindate:

They are.

Andre Sindate:

I used to work for one of those individuals, Andy Cummings.

Andre Sindate:

I'm going to give him a shout out.

Andre Sindate:

It's been a long time since he and I have caught up.

Andre Sindate:

But I say that because Mike Fearman, as you entrepreneur, he's a co founder of South Star Funding.

Andre Sindate:

They're doing at peak like $6 billion a year of this origination of non QA mortgages.

Andre Sindate:

They're moving the paper, there's a process, a machine working.

Andre Sindate:

They're selling it to the bigger firms, the bigger banks, some of which aren't around today, but that's working.

Andre Sindate:

So there's an important lesson in what you said, finding complementary strengths, thinking long term from the outset.

Andre Sindate:

And just you said this ten minutes ago, grinding, you're not coming from these pedigreed institutions.

Andre Sindate:

So for all those managers that are listening that want to go build a business, whether it's in real estate, credit, private equity venture, the first three years, you're going to be anonymous.

Andre Sindate:

You know, I think is an important message that I heard and you got to just do what you got to do within the bounds of what's allowed.

Andre Sindate:

You know, go to sit at a restaurant, you know, go do the high net worth channel, talk about the next phase after eleven.

Andre Sindate:

But before I do that, I want to, I want to.

Andre Sindate:

We talked about this offline.

Andre Sindate:

I had a meeting with Mike and David Wells, your chief portfolio strategist.

Andre Sindate:

He was a managing director at the time we got introduced.

Andre Sindate:

I had former business partner, I had just left banking myself.

Andre Sindate:

I think this was the third or fourth asset manager I met and I was at Suntrust and Capital markets, one of the divisions that was growing while I was still there.

Andre Sindate:

Looking back, it was not the right time to be growing, was the securitizations business.

Andre Sindate:

They were getting into all this stuff that Wall street was winding up and that's kind of the story for another day.

Andre Sindate:

But regional banks just being sort of behind both in innovation but also in unwinding the book when it needs to be unwound.

Andre Sindate:

And I remember leaving that meeting with Mike and David thinking, I don't know what in hell these guys are doing, but they're super wicked smart.

Andre Sindate:

And it's a lesson that I'll never forget in.

Andre Sindate:

Just because you don't understand it on the surface, right away, don't allow an opportunity for the advisors listening for your client to miss out on something.

Andre Sindate:

To your point, imagine being one of those early investors, staying with the business, staying with the strategy over what is now 15 years, the kind of capital you created.

Andre Sindate:

I know some of those people had an opportunity to invest in your business and probably wish they had, and some probably did, but I think that's an important lesson for advisors.

Andre Sindate:

As an aside, before you get into sort of that inflection point in eleven, which is there's a lot of stuff out there that's on the surface.

Andre Sindate:

People just say it's too hard, I don't understand it, and they just move on.

Andre Sindate:

But I kick myself still to this day.

Andre Sindate:

I don't have regrets.

Andre Sindate:

I'm still glad we're connected and friends.

Andre Sindate:

But I look back on that conversation, shit, I wish I would have, you know, spent more time digging in.

Andre Sindate:

Would have, should have, could have.

Andre Sindate:

But it's an important lesson for advisors, I think.

Andre Sindate:

We are fiduciaries.

Andre Sindate:

Our obligation is to do the research and find the right strategies.

Andre Sindate:

And sometimes that means, you know, doing the extra work, asking more questions.

Andre Sindate:

Don't just pass on it outright.

Andre Sindate:

So let's get back to:

Andre Sindate:

You're at 200 investors, you're growing.

Andre Sindate:

It's still a private fund business at the time.

Srinivas Prabhu:

Yeah, it's still a private fund and it's actually series of funds.

Srinivas Prabhu:

So we had probably three or four funds, maybe.

Srinivas Prabhu:

So we're creating just a series of funds, getting just a little bit more, you know, differentiated in each strategy.

Srinivas Prabhu:

So:

Srinivas Prabhu:

2011 was a.

Srinivas Prabhu:

Not the best year, but the distressed opportunity in mortgages had disappeared by then because fed had come in, liquefied the system.

Srinivas Prabhu:

Government had come up with public private partnerships to buy these assets.

Srinivas Prabhu:

So the concept of distressed mortgage backed securities became more opportunistic.

Srinivas Prabhu:

So in hedge funds, if you think about at that time, when we're buying these distressed mortgages, you could buy, not even put leverage and make 20 plus percent irrs.

Srinivas Prabhu:

That opportunity changed in:

Srinivas Prabhu:

Where now, if you had to do two things, you have to go more down in credit, or you have to apply leverage.

Srinivas Prabhu:

So you're going back to what the hedge fund was.

Srinivas Prabhu:

And we had told our investors that we generally would not apply leverage.

Srinivas Prabhu:

We had just been with these guys, and so we knew our returns would be down, but we would still give cash flows to our investors.

Srinivas Prabhu:

So we had a choice to make.

Srinivas Prabhu:

We could either just hold the funds, take our profit, return money back, or build a business around it.

Srinivas Prabhu:

Because just managing a hedge fund at that time was just.

Srinivas Prabhu:

At that point, you were just going to amplify more and more leverage.

Srinivas Prabhu:

So we actually said, we don't want to raise that much more money in the hedge fund structures.

Srinivas Prabhu:

How do we deliver this value to all sets of investors, retail and institution?

Srinivas Prabhu:

And at the same time, we were also saying legacy mortgages are disappearing by the minute, and nobody's originating new mortgages.

Andre Sindate:

Right.

Srinivas Prabhu:

So there were two things that were happening, and it was just three, four of us in a room.

Srinivas Prabhu:

You came to see us at that time.

Andre Sindate:

Yeah.

Andre Sindate:

50 old Ivy house.

Andre Sindate:

It's incredible.

Srinivas Prabhu:

And, you know, we, you know, we had to make a decision again to put our money back on the line.

Srinivas Prabhu:

Right?

Srinivas Prabhu:

So we put money in the beginning, you know, we were cash flowing as me and Mike, and then we were like, okay, we want to build a business.

Srinivas Prabhu:

We want to build a long term business.

Srinivas Prabhu:

How do you do that?

Srinivas Prabhu:

Well, you got to hire good people.

Srinivas Prabhu:

They'll come work with you and work for this dream and idea that you're putting together.

Srinivas Prabhu:

So we started putting team.

Srinivas Prabhu:

Three things we did.

Srinivas Prabhu:

We started putting teams together to do all sorts of asset backed securities.

Srinivas Prabhu:

we were doing mortgages until:

Srinivas Prabhu:

So we put a team together.

Srinivas Prabhu:

Then the next idea was, okay, we are investing in structures that nobody really knows.

Srinivas Prabhu:

These were toxic mortgages.

Andre Sindate:

Nobody.

Srinivas Prabhu:

How do we deliver them to the retail side?

Srinivas Prabhu:

Who's going to trust us?

Srinivas Prabhu:

And we had one local investment advisor that said, I know what you're doing, but my clients cannot be in a hedge fund structure.

Srinivas Prabhu:

Can you deliver that in a mutual fund structure?

Srinivas Prabhu:

And we said, look, we can do that, but it has to be more liquid.

Srinivas Prabhu:

It is not going to achieve the returns that you want to be.

Srinivas Prabhu:

A good relative value versus high yield and high grade has to be a smaller fund.

Srinivas Prabhu:

It cannot be a hundred billion dollar fund.

Srinivas Prabhu:

Not that we were even close to that, but it has to.

Srinivas Prabhu:

And that Ri gave us money.

Srinivas Prabhu:

This is a two story and another advisor from California.

Srinivas Prabhu:

I don't want to mention the name.

Srinivas Prabhu:

They cold called us.

Srinivas Prabhu:

They had screened us for four months and they said, we really like your strategy.

Srinivas Prabhu:

We have been looking to invest in non agencies.

Srinivas Prabhu:

You know, everybody on, in the mutual fund community was investing at that point, but sleeves of it, nobody had a big allocation to it.

Srinivas Prabhu:

Sure, we like what you're doing.

Srinivas Prabhu:

And they give us, I think they gave us $100 million, and I never like, that was the first big.

Andre Sindate:

We've got something here, folks.

Srinivas Prabhu:

Again, people taking faith in what we're doing.

Srinivas Prabhu:

You know, we didn't even know this group.

Srinivas Prabhu:

You know, we still look back and we feel that this was the most important group for us in what they did for our firm.

Srinivas Prabhu:

And then we got onboarded on White House platforms, which is very difficult to do, as you know.

Srinivas Prabhu:

And again, we just screened well, people like what we have to say.

Srinivas Prabhu:

And even today, when you go to this, there are years when we will underperform.

Srinivas Prabhu:

There are years when we outperform, but we do what we tell you we are doing.

Srinivas Prabhu:

We didn't scope creep.

Srinivas Prabhu:

We didn't go crazy and other things.

Srinivas Prabhu:

Even, even when you think about subprime mortgages, a lot of our funds didn't own a lot of subprime mortgages.

Srinivas Prabhu:

So we committed to what we wanted to do.

Srinivas Prabhu:

So that was the one thing is to put a team to really say that.

Srinivas Prabhu:

We can't just say that asset backed securities are the best.

Srinivas Prabhu:

We have to look at it across the board in terms of fixed income.

Srinivas Prabhu:

So, like today, we have a high yield corporate bond portfolio manager.

Srinivas Prabhu:

We have a CLO portfolio manager.

Srinivas Prabhu:

So we look across fixed income credit, but at the end of the day, we are asset back mortgage backed securities franchise.

Srinivas Prabhu:

But we look at it.

Andre Sindate:

Yeah, you do.

Srinivas Prabhu:

did, which really started in:

Andre Sindate:

Yep.

Srinivas Prabhu:

The new non agency, or what is called non QM.

Andre Sindate:

Non QM.

Andre Sindate:

Explain what that means real quick.

Andre Sindate:

I know that folks will want to understand that non QM mortgage agency, non agency.

Andre Sindate:

Help people understand that.

Srinivas Prabhu:

So after the financial crisis, the government wanted to really come and define, like, what, why this fraud or poor underwriting happened.

Andre Sindate:

Why did we have this big bubble?

Srinivas Prabhu:

Yeah, everybody was getting mortgages and they created these names.

Srinivas Prabhu:

But at the end of the day, how do we contain it next time around?

Srinivas Prabhu:

So they came up with a few things.

Srinivas Prabhu:

They said, if you're a w two income, if you're under the threshold of government mortgage cap, if you have two years of whatever earnings, then you're a qualified mortgage.

Srinivas Prabhu:

It's a checkbox.

Srinivas Prabhu:

It's called delegated underwriting.

Srinivas Prabhu:

You go in and it's a government mortgage.

Srinivas Prabhu:

Banks can do it and you're qualified now.

Andre Sindate:

That's right.

Andre Sindate:

And people have heard of Fannie and Freddie, these big sort of quasi government agencies.

Andre Sindate:

They will, if it's QM paper, QM mortgages, they will support the banks that originate that mortgage or the wholesale mortgage companies that originate on behalf of the banks.

Andre Sindate:

How do those entities just, again, education a little bit.

Andre Sindate:

How do those agencies fit into the QM market?

Srinivas Prabhu:

So they are the QM market, right?

Srinivas Prabhu:

So Fenime and Freddie MEc are the qualified mortgage.

Srinivas Prabhu:

So when you buy a total return bond fund and they say agency mortgage backed securities, that's all qualified mortgages, basically.

Andre Sindate:

And so those banks, those lenders, feel safer lending to that higher quality borrower.

Andre Sindate:

Proof of income, higher credit score, debt to income, all the things check.

Andre Sindate:

And they know that they can do another one tomorrow if they have a good marketing and originations business, because they can sort of offload that paper to the Fannie Freddy's.

Srinivas Prabhu:

That's right.

Srinivas Prabhu:

And it's a balance sheet life model.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

You collect fees, you keep the servicing the securities, then go through the entire fixed income community globally.

Srinivas Prabhu:

It could be pensions buying it, it could be sovereigns buying it.

Andre Sindate:

Safer.

Srinivas Prabhu:

And so, but what they did importantly is then they said, look, guys, if you're not qualified, I'm not going to make a claim, whether you're a bad borrower or a good borrower, you're just a non qualified borrower.

Andre Sindate:

Right.

Andre Sindate:

Non Qn.

Srinivas Prabhu:

If you want to originate that, it's your risk.

Srinivas Prabhu:

Now you have to underwrite it.

Srinivas Prabhu:

You have to keep all the paperwork.

Andre Sindate:

And you've got to reserve more capital.

Srinivas Prabhu:

You've got to reserve more capital.

Srinivas Prabhu:

It's called risk retention.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

And this is the same thing with the private investors like ourselves.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

So basically, effectively, what that created.

Srinivas Prabhu:

For example, when I left Washington mutual, I had a w two income.

Srinivas Prabhu:

So when we started Angelok, I go from w two income to no income.

Srinivas Prabhu:

I'm a non qualified borrower.

Srinivas Prabhu:

I may have savings, I may have bank statements, but I'm a non qualified borrower.

Srinivas Prabhu:

So I have to be fully underwritten.

Srinivas Prabhu:

And somebody giving me that loan pools of these loans, they have to keep the risk retention or their incremental capital towards it.

Srinivas Prabhu:

That was a basic.

Andre Sindate:

And that creates more, just friction.

Andre Sindate:

Right.

Andre Sindate:

For that lender.

Andre Sindate:

So they have to then make a decision, do we really want to go and, you know, provide the loan to Srini.

Andre Sindate:

He seems like he's going to pay us back.

Andre Sindate:

You know, he's got a degree.

Andre Sindate:

He's got good job history, but he doesn't have that w two anymore.

Andre Sindate:

I mean, it's amazing, but that's kind of how decisions kind of get made, right?

Andre Sindate:

So let's talk non QMD and this whole rmbs space, because there's.

Andre Sindate:

It's a massive market, trillions of dollars.

Andre Sindate:

Right?

Andre Sindate:

People want to own a home.

Andre Sindate:

People, not everybody, but a lot of people want to own a home.

Andre Sindate:

So it's a massive market.

Andre Sindate:

And at the same time, the banks got really hammered coming out of zero eight.

Srinivas Prabhu:

Yeah.

Andre Sindate:

So they got to start making some board level decisions.

Andre Sindate:

Do we want to be in this space or not?

Andre Sindate:

You all create a fund, a mutual fund, a 40 act mutual fund.

Andre Sindate:

You're distributing it.

Andre Sindate:

What are you putting in the fund at that time?

Srinivas Prabhu:

Yeah.

Srinivas Prabhu:

And so in that fund, you know, we were not putting non QM loans in the fund because it was an illiquid sector that went to our hedge funds.

Srinivas Prabhu:

In our fund, we really were introducing structured credit.

Srinivas Prabhu:

Mortgage.

Andre Sindate:

Got it.

Srinivas Prabhu:

Still, legacy mortgages, retail investors saying that, hey, if you have $100 in fixed income, I'm not your core bond manager.

Srinivas Prabhu:

If you want a little alpha on your money relative to other risk assets, high yield corporates or bank loans, you should take a look at what we do because this is other form of.

Andre Sindate:

Spread and risk and tight spreads, less return, wider spreads.

Andre Sindate:

You've got experienced PM's and experienced risk managers.

Andre Sindate:

They're going to be able to pick and choose and know where to get exposure and where not to because spreads have gapped out and they're wider.

Andre Sindate:

So it pays, again, advisors to do the work, to find the teams that have the experience having been in those trenches, having originated that paper.

Srinivas Prabhu:

So it was really what, when you go to our website and you see it, you know, for the first two years, it was really the education of.

Srinivas Prabhu:

What was this?

Srinivas Prabhu:

Right.

Srinivas Prabhu:

You, you were.

Srinivas Prabhu:

This was the first time.

Srinivas Prabhu:

And to be fair, you know, this asset class imploded.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

So it was right to be skeptical.

Srinivas Prabhu:

You know, if you go to the offices today, across the country, I travel now, there's a lot more education that has happened about these types of assets.

Srinivas Prabhu:

Okay, clearly they may still decide not to buy them for different reasons, but the concept that, hey, don't even walk in here because I'm never going to look at this stuff that doesn't exist.

Srinivas Prabhu:

There's a lot more information in the retail community in advisors.

Srinivas Prabhu:

But in:

Srinivas Prabhu:

There were some groups that absolutely had a bigger risk tolerance and.

Srinivas Prabhu:

But also at more educational level just because of maybe the background they came with.

Andre Sindate:

Yeah, yeah.

Srinivas Prabhu:

So, you know, our first three years were just literally educating people on what these assets are.

Andre Sindate:

What is it?

Andre Sindate:

Yeah, but, but the idea of starting a mortgage company, that.

Andre Sindate:

And my numbers might be low.

Andre Sindate:

I mean, I know I've heard overdose over the years.

Andre Sindate:

Like, the mortgage company's growing, you're moving, you know, it's more people.

Andre Sindate:

8800 people today in the mortgage business.

Andre Sindate:

And why, why start the mortgage business?

Srinivas Prabhu:

That's right.

Srinivas Prabhu:

when you, when we learned in:

Andre Sindate:

Yeah.

Srinivas Prabhu:

They didn't want to start.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

So they basically just exited the sector.

Srinivas Prabhu:

So created a vacuum.

Srinivas Prabhu:

And so who starts it?

Srinivas Prabhu:

It will either be private equity firms, the big private equity firms, or guys like us.

Srinivas Prabhu:

So we stepped into this because of one important thing.

Srinivas Prabhu:

I had a partner that knew how to start a mortgage company.

Srinivas Prabhu:

You know, we, as asset managers, I would have no idea how to go in and start a mortgage company.

Andre Sindate:

Right.

Srinivas Prabhu:

Why did we need to start a mortgage company?

Srinivas Prabhu:

Because nobody was originating these loans.

Srinivas Prabhu:

So where do I buy them from?

Srinivas Prabhu:

But the other thing we did is we said this time around, we want to originate, to own.

Srinivas Prabhu:

So our whole belief was that we want to introduce this asset class to institutional investors.

Srinivas Prabhu:

This time around, we want to be what we call private credit managers of mortgage credit.

Srinivas Prabhu:

So how do we start that?

Srinivas Prabhu:

So we said we want to own, if you want to own credit, we have to prove that we are underwriting it from the time the loan comes in.

Srinivas Prabhu:

And how do you do that?

Srinivas Prabhu:

You start a mortgage company.

Srinivas Prabhu:

So we started a mortgage company, we were doing 10 million a month, probably not even making money, but, you know, it was, how do you say, you know, chicken and egg kind of story.

Andre Sindate:

Gotta make that call.

Srinivas Prabhu:

Yeah.

Srinivas Prabhu:

If I go to institutional investors and say I want to raise $100 million, and they're like, what asset class are you starting?

Srinivas Prabhu:

And if I told them I'm doing 10 million a month of origination and nobody knows about this sector, nobody's gonna give you money.

Srinivas Prabhu:

So you have to prove to raise institutional money that, a, this asset class was legitimate, b, the securitization existed, and c, the size of the market would grow.

Srinivas Prabhu:

Those are the three things we were working on.

Srinivas Prabhu:

So by:

Srinivas Prabhu:

And I believe we would have, and we were doing it in a hedge fund, but we knew that was, that could only be a small part of the hedge fund.

Srinivas Prabhu:

Obviously, we couldn't just put every single mortgage in there.

Srinivas Prabhu:

And we did.

Srinivas Prabhu:

on in December, I believe, of:

Andre Sindate:

Yeah.

Andre Sindate:

It was a private, was it a private securitization?

Andre Sindate:

Like, you got it rated, you didn't, you didn't do any rating.

Andre Sindate:

No private rating.

Andre Sindate:

Okay, so you did a securitization and you put, you put a bunch of the mortgages in there and did you take it to the insurance market?

Andre Sindate:

I know they like this stuff now, but at the time, were they buying.

Srinivas Prabhu:

It was insurance companies, asset managers, some hedge funds.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

Guys knew about this asset class.

Srinivas Prabhu:

Yeah.

Srinivas Prabhu:

Money managers that knew what we were bringing to the table.

Srinivas Prabhu:

They came to our offices, they looked at our underwriting standards.

Srinivas Prabhu:

So there was a full blown due diligence.

Srinivas Prabhu:

The world has changed dramatically.

Srinivas Prabhu:

They're just buying bonds now.

Andre Sindate:

But did you get a total different reception?

Andre Sindate:

The fact that you could say, we underwrote it, we originated, we underwrote it.

Andre Sindate:

We know exactly what's going on.

Andre Sindate:

We're servicing it.

Andre Sindate:

I mean, that's different than saying, oh, we bought it here, and it's like, well, I don't know.

Andre Sindate:

I mean, what was the reception?

Srinivas Prabhu:

Well, reception, but also, you know, just, again, you know, things happened in your life, you know, didn't happen.

Srinivas Prabhu:

These guys who bought our senior bonds, they didn't have to sponsor our securitization.

Srinivas Prabhu:

They could have said, look, let me buy the next bond.

Srinivas Prabhu:

It's unrated.

Srinivas Prabhu:

Why would I take a risk as a portfolio manager?

Srinivas Prabhu:

But they came to us, they supported our program.

Srinivas Prabhu:

They also wanted to grow the next non QM 2.0, which is what I call it.

Andre Sindate:

Yeah.

Srinivas Prabhu:

And they bought the bonds, you know, so, you know, it's, it's satisfying to start.

Andre Sindate:

That's amazing.

Srinivas Prabhu:

And a proof of concept.

Srinivas Prabhu:

And then we could go to the institutional community and say, now I need to raise the dollars, and I'm going to give you risk retention.

Srinivas Prabhu:

We manage your credit.

Srinivas Prabhu:

You're managing your credit.

Srinivas Prabhu:

We're not just, you know, we're not a capital markets exercise.

Srinivas Prabhu:

We're managing credit for you, number one.

Srinivas Prabhu:

Number two, we are creating an efficient financing for those bonds.

Srinivas Prabhu:

That was the basic thesis, right?

Srinivas Prabhu:

It was not.

Srinivas Prabhu:

Hey, we originate loans, refinance, and you get your levered return.

Srinivas Prabhu:

No, no, no, we underwrite credit.

Srinivas Prabhu:

Now we can underwrite credit and leave it unlevered for you.

Srinivas Prabhu:

But if you want leverage, the best way to do it through securitization, locked in financing.

Srinivas Prabhu:

And that really grew our private credit business, which is about 3 billion today, all institutional money.

Srinivas Prabhu:

But we had two companies, retail and wholesale.

Srinivas Prabhu:

At the peak we had 800 people.

Srinivas Prabhu:

ld our retail business around:

Srinivas Prabhu:

That was not core to what we did, but it was great business to have had.

Srinivas Prabhu:

So today we have, I think, close to 250 plus people.

Srinivas Prabhu:

And all we do is non qualified mortgages, prime jumbo mortgages, and now startup helocs.

Andre Sindate:

So, yes, and we're going to talk about helocs.

Andre Sindate:

This is, man, we're getting out on the curve here.

Andre Sindate:

So to simplify it in terms of the chain of how this works, if I'm a gig worker, yeah, and I've had five, six, seven years of consistent income, but it's non traditional income.

Andre Sindate:

It's not maybe w two, it's, it's gig income.

Andre Sindate:

Maybe my spouse works freelancers, maybe not.

Andre Sindate:

Maybe I'm solo and I want to go get my first morgue.

Andre Sindate:

I want to go get my first real estate property.

Andre Sindate:

Maybe it's an investment property, maybe it's an owner occupied property.

Andre Sindate:

But who's that individual calling?

Andre Sindate:

How do they find their way to the funding that you guys provide to, I would assume now that's that retail customer facing originator.

Andre Sindate:

How explain that value chain and how it works and where your capital and your investors capital comes into play for that gig worker.

Srinivas Prabhu:

Yeah, so that, that gig worker, it could be also be a dentist that starts, it could be what, exactly what you're doing right now.

Srinivas Prabhu:

And basically you're working for yourself.

Srinivas Prabhu:

Real estate agents, real estate brokers.

Srinivas Prabhu:

Yeah, and our first clients were probably real estate agents because they understood what we were trying to prove.

Srinivas Prabhu:

And, yeah, you know, if you, when we started, you know, it was a good timing because if you're a real estate, so that individual is going to a real estate broker in town or a bank, right?

Srinivas Prabhu:

He's going to a bank and he's saying, can you give me this mortgage?

Srinivas Prabhu:

And that guy who's sitting at a table, he's probably doing five, let's say five to six government mortgages or agency mortgages a month.

Srinivas Prabhu:

He doesn't have time to understand the non qualified.

Srinivas Prabhu:

He knows he's not going to originate the loan, the bank's just not going to do it.

Srinivas Prabhu:

So he goes and says, I want to keep the relationship with this guy.

Srinivas Prabhu:

So he calls Angel Oak and says, angel Oak, the most important thing for me is to keep my relationship with the guy.

Srinivas Prabhu:

So if you don't want to do the loan, don't do the loan, but don't drag him for a few months, and then I can't do this loan.

Andre Sindate:

Right.

Srinivas Prabhu:

So what we go, what we told those brokers or real estate agents or bank brokers, hey, Angelok is here to originate this loan and buy the loan.

Srinivas Prabhu:

And we have fund capital.

Srinivas Prabhu:

So it's not like every loan we make.

Srinivas Prabhu:

Then we are looking to find out where we could sell this loan to.

Andre Sindate:

Right?

Andre Sindate:

No, no, no.

Andre Sindate:

Yeah.

Srinivas Prabhu:

Another thing we did is we said we took all the work out of that broker's hand.

Srinivas Prabhu:

We said, we do it.

Andre Sindate:

We'll underwrite it.

Srinivas Prabhu:

We want to underwrite because also that gave us data and analytics.

Srinivas Prabhu:

So every time you're doing better and better and better, what is a good loan, what's a bad loan?

Srinivas Prabhu:

What documents do we need?

Srinivas Prabhu:

What documents do we not need, right.

Srinivas Prabhu:

Originally, we were asking for a lot of documents, right.

Srinivas Prabhu:

Because we didn't know which ones we really needed.

Srinivas Prabhu:

And we got more efficient.

Srinivas Prabhu:

We started using more technology.

Srinivas Prabhu:

But in the beginning, that was a.

Srinivas Prabhu:

It was like you said, it's customer.

Srinivas Prabhu:

It's.

Srinivas Prabhu:

It's education of the customer.

Srinivas Prabhu:

Then the relationship we have to explain to them is, if the mortgage rates are 5%, why am I getting 8%?

Srinivas Prabhu:

So now we have that to go to.

Srinivas Prabhu:

But.

Andre Sindate:

Right.

Srinivas Prabhu:

Customer service was where our mortgage company shined, and even today shines.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

So we still have guys that we have.

Srinivas Prabhu:

You know, there's a lot more competitors.

Srinivas Prabhu:

It's a competitive market.

Srinivas Prabhu:

It's a.

Srinivas Prabhu:

It's a little bit more commoditized market today than it was when we started.

Srinivas Prabhu:

But people come for service.

Srinivas Prabhu:

Right?

Srinivas Prabhu:

That's where people go for price.

Srinivas Prabhu:

There are places people come for service.

Srinivas Prabhu:

We are the service on that.

Andre Sindate:

And we need to.

Andre Sindate:

Yeah, that's huge.

Andre Sindate:

And I've been private credit.

Andre Sindate:

When you develop a reputation for saying, we're going to take a hard look and we're going to give you a quick no, or we're going to actually get constructive on the underwriting, that's the best thing that you could possibly hear.

Andre Sindate:

If you're a broker or trying to arrange finances.

Andre Sindate:

Just give me some certainty.

Andre Sindate:

Don't drag me along, don't drag me out.

Andre Sindate:

Because they're trying to get that capital, execute their deal, close on the real estate transaction.

Andre Sindate:

And if you get hung at, you know, at the, at the altar, you know, there's different terms for this in the industry.

Andre Sindate:

It's just a non starter.

Andre Sindate:

You're never calling, you're never calling that lender again.

Andre Sindate:

So the service, the reputation, delivering, saying, this is our credit box.

Andre Sindate:

You know, all that, it's.

Andre Sindate:

It's huge.

Andre Sindate:

Yeah, you all are.

Andre Sindate:

I mean, there's a lot of things we could cover, but there's some areas that you're now evolving into today at Angel Oak, you've got this obvious, you know, deep reservoir of data, deep reservoir of experience, much bigger team of experts.

Andre Sindate:

Now, fast forward, you're running 17, $20 billion.

Andre Sindate:

You've got an ETF.

Andre Sindate:

It just surpassed a billion dollars.

Srinivas Prabhu:

Yeah.

Andre Sindate:

Did the experience.

Andre Sindate:

I want to ask, did the experience you learned on the, on starting the mutual fund and, hey, retail investors want this exposure.

Andre Sindate:

They want these underlying, they want this underlying collateral in these assets, but they don't want it in a private fund.

Andre Sindate:

We need to go start a mortgage company.

Andre Sindate:

What was the thinking of starting the ETF business?

Andre Sindate:

I'm curious.

Srinivas Prabhu:

So as we evolved as a firm, a few things we learned is that the retail community, if you think about it from our business, everybody, when they launch funds, they think that, oh, you have to raise institutional money because that's more sophisticated money.

Srinivas Prabhu:

That is not true.

Srinivas Prabhu:

I've learned that, first of all, the retail investor base and the depth of, in terms of the overall market is a huge market in the US.

Srinivas Prabhu:

It's more sophisticated than people think.

Srinivas Prabhu:

It's an insult to call them not.

Srinivas Prabhu:

So they want to learn more, but they also need to be in what we call solutions.

Srinivas Prabhu:

We have to provide them with solutions.

Srinivas Prabhu:

And used to be that.

Srinivas Prabhu:

A lot of not, I'm not saying hopefully in a bad way, but pushed what you thought was good for them.

Srinivas Prabhu:

And now they're pushing back and saying, no, no, no, I know what I want, and you have to offer me a solution.

Srinivas Prabhu:

So if you come with a product every time, you know, I'm not.

Srinivas Prabhu:

I'm gonna take your meeting a couple of times, but if you go give me solutions, give me a group of solutions, I'll do business with you at some point when it makes sense.

Andre Sindate:

That's absolutely right.

Srinivas Prabhu:

And then, you know, we have, we've been in the business long enough where when we go into, you know, we go across the country to individual reps, whether they're Morgan Stanley or whether they're UBs, or whether they're in independent ra is like myself.

Andre Sindate:

Right?

Andre Sindate:

Like, yeah, we clear in custody through Schwab, but we, that independent advisory community, we think in terms of just like the guy that's sitting, or gal sitting over there at private bank or at Wells Fargo or Morgan Stanley.

Andre Sindate:

We're thinking, how do I best serve the client?

Srinivas Prabhu:

Exactly.

Andre Sindate:

How do I bring a solution?

Andre Sindate:

And you can't.

Andre Sindate:

The days of selling a product, those are short lived.

Andre Sindate:

And as alts have proliferated, just calling up the client, say, oh, we can get 8% here.

Andre Sindate:

Like, that's done.

Srinivas Prabhu:

Yeah, it works.

Srinivas Prabhu:

It works for a short period of time.

Andre Sindate:

It works for a trade or two.

Srinivas Prabhu:

But that does not create a relationship.

Srinivas Prabhu:

So the ETF business is interesting.

Srinivas Prabhu:

You'll see it.

Srinivas Prabhu:

We had a, again, you know, the risks you take in the business, and, you know, they were not risk.

Srinivas Prabhu:

It was, you know, we, we wanted to do it anyway.

Srinivas Prabhu:

We had a, we had a individual by the name of Ward Boers.

Srinivas Prabhu:

He worked at investor, a very sophisticated shop, and he wanted to build out an ETF business.

Srinivas Prabhu:

I had no idea about the ETF business, but he walked me to the transition of what's happening in fixed income space and how advisors are using ETF's relative to mutual funds for the lack, for the ease of, and for a variety of different reasons.

Srinivas Prabhu:

And so again, the feedback mechanism advisors came to us and said, look, we love your products.

Srinivas Prabhu:

Number one, I want you to, I want you guys to give us more solutions.

Srinivas Prabhu:

Again, not one fund, a solution.

Srinivas Prabhu:

Let me decide.

Srinivas Prabhu:

Give me different shades of risk and return.

Srinivas Prabhu:

And b, you got to have it in both wrappers, a mutual fund wrapper and ATF rapper, and to our friends on the warehouse platforms.

Srinivas Prabhu:

And they appreciate it.

Srinivas Prabhu:

And like I said, if you want a total return bond fund, you know where to go.

Srinivas Prabhu:

We're not here.

Srinivas Prabhu:

But if you want what we call a core plus plus, our satellite funds, we'll provide you solutions.

Srinivas Prabhu:

They will be based on asset backed securities, mortgage back, or variety.

Srinivas Prabhu:

And you decide how it affects you.

Srinivas Prabhu:

And, you know, there will be times when high yield is wider than us, as times when high grade is cheaper than us, you can make your decision.

Srinivas Prabhu:

So that's what led us to launch ETF's.

Srinivas Prabhu:

I would tell you the transition.

Srinivas Prabhu:

Just structurally, mutual funds will shrink as a business happened in equities, now it's happened to fixed income.

Andre Sindate:

Yeah, definitely.

Srinivas Prabhu:

And ETF's are going to be.

Srinivas Prabhu:

So, a, for a long longevity of the business, you have to offer it, right.

Srinivas Prabhu:

You could have said, why ETF?

Srinivas Prabhu:

It's too much cost structure.

Srinivas Prabhu:

It's a lot of learning to be done, but we were excited to do it.

Srinivas Prabhu:

We had Ward, who knew a lot about it.

Srinivas Prabhu:

And he's put a team together.

Srinivas Prabhu:

It's been fascinating journey, but our core thesis is still the same.

Srinivas Prabhu:

We are managing credit for individuals.

Andre Sindate:

Right.

Srinivas Prabhu:

That's the basic thing.

Andre Sindate:

Yeah, I love it.

Andre Sindate:

So many managers I've had the opportunity to interact with over the years doing this now 15 years.

Andre Sindate:

The single biggest challenge some of the managers seem to have is they have a short term orientation on results.

Andre Sindate:

There's a sense of, if I go and hire somebody and don't get an immediate return on investment, that's a salary I just am not willing to continue to carry.

Andre Sindate:

So there's high turnover, misaligned expectations, and not a long term orientation.

Andre Sindate:

I know that a lot of times the PM and the founders and this is to the fund managers listening.

Andre Sindate:

It's your capital.

Srinivas Prabhu:

Yeah.

Andre Sindate:

You're putting your money on the line, but you've articulated over 45, 50 minutes, multiple times over the course of Angel Oaks history where you said, we got to build a team.

Srinivas Prabhu:

Yeah.

Andre Sindate:

We got to make an investment in a mutual fund business, we got to make an investment in growing that team.

Andre Sindate:

We got to make an investment in ETF business.

Andre Sindate:

We got to bring in an outside expert.

Andre Sindate:

We got to give that person time.

Andre Sindate:

I get on my soapbox about this because so many people think that this is just about having a couple stock jockeys and a couple smart people, you know, that came out of really target schools and like big funds.

Andre Sindate:

And it's, it's like, trust them.

Andre Sindate:

They're good.

Andre Sindate:

They're gonna, they're gonna be good.

Andre Sindate:

Those are not really more.

Andre Sindate:

I don't call them real asset managers.

Andre Sindate:

They're more lifestyle kind of family offices.

Srinivas Prabhu:

Yeah.

Andre Sindate:

And so I really applaud you because to have a firm that's, that's grown and innovated and changed with the times, recognize the importance of the advisor and the relationship and the investment in education to support the advisor.

Andre Sindate:

Those dollars trickle in.

Andre Sindate:

A ticket to an ETF might be a million dollar, $2 million, 3 million ticket, but over time, if that business grows, that could be a $30 million relationship, could be a $50 million relationship.

Srinivas Prabhu:

That's what you just said is where people miss out.

Srinivas Prabhu:

Business is not a hundred million dollar ticket they want.

Srinivas Prabhu:

So you have to go get your 1st 1 million to get your next 2 million.

Srinivas Prabhu:

And it takes time.

Srinivas Prabhu:

But then the compounding takes over and a lot of people will say, why am I doing, why am I launching a fund with $10 million?

Srinivas Prabhu:

What if it stays at $10 million?

Srinivas Prabhu:

Well, that's the risk you have to take.

Andre Sindate:

Yeah.

Srinivas Prabhu:

But generally, you know, if you do the right thing and patience, you gotta be very, very patient.

Srinivas Prabhu:

And we have, you know, wholesalers is what we call them, who meet all the advisors.

Srinivas Prabhu:

You know, I give them a lot of credit because the PM's is great.

Srinivas Prabhu:

Like, money comes in, you manage money, somebody's gotta go get the money and articulate to somebody that we are a small $10 million fund, but you should trust us.

Srinivas Prabhu:

And what you find along the way is all the relationships you've built in the past.

Srinivas Prabhu:

People trust you and say, I know you guys, I like this fund structure.

Srinivas Prabhu:

It's not big enough for me to put all my money, but I'm going to help put a little bit of money in.

Srinivas Prabhu:

And then you put 15 of these guys together and now you launch something.

Srinivas Prabhu:

So again, that feedback from the advisor and what I've learned along the way, I was on the road trip a couple of weeks ago.

Srinivas Prabhu:

I'd been on the road for some time, is we get feedback from the advisors too.

Srinivas Prabhu:

It's not a one way.

Andre Sindate:

Oh, yeah, advisors have a lot of.

Srinivas Prabhu:

Information that can be valuable to somebody like me because they're managing a lot more money than we are.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

So yeah, you know, what's going on?

Srinivas Prabhu:

What are you doing for your clients?

Srinivas Prabhu:

Where can we be value at?

Srinivas Prabhu:

Not just short term, but long term.

Srinivas Prabhu:

And that's important.

Srinivas Prabhu:

So that's why it just doesn't start with, hey, here's a hundred million dollar ticket.

Andre Sindate:

That's how it works.

Andre Sindate:

It doesn't work that way.

Andre Sindate:

I want to pick up on a piece that's on your website.

Andre Sindate:

Again, to all the listeners, I would encourage you to go out to angelo Capital.com dot.

Andre Sindate:

There's really great resources, content, and get to know Srini and Mike, the co CEO's, through some great content they've put out, but also just the department, the research, the data, all those things.

Andre Sindate:

There's great articles, and one of the ones that I wanted to ask you about is, you say, in today's markets.

Andre Sindate:

This is from one of the articles.

Andre Sindate:

This is, I think from a few weeks ago.

Andre Sindate:

So it's very current.

Andre Sindate:

In today's markets, however, value potential is historic due to mortgages trading at steep discounts.

Andre Sindate:

There's a great chart about spreads, and the chart talks about corporate spreads.

Andre Sindate:

So these would be bonds, double AAAA rated bonds.

Andre Sindate:

They're trading pretty tighten.

Andre Sindate:

The opportunity to add mortgage backed securities at some of the most compelling spreads and yields.

Andre Sindate:

Again, corporate credit, tight spreads, less relative value there.

Andre Sindate:

If you're an advisor thinking about where do I get income for my clients, my retired clients, my clients that are trying to spend the next 15 years not grinding away, but they want to generate income, but also just be people that have that exposure and want that income and an opportunity, an agency.

Andre Sindate:

But your alls expertise is the non agency rmbs, which are trading, as you say, at wider spreads than historical averages.

Andre Sindate:

I said a lot.

Andre Sindate:

There's a lot of terminology there.

Andre Sindate:

Explain that in layman's terms as if you were talking with an advisor.

Andre Sindate:

You're not giving financial advice on my show, on this show, but just generally the idea of relative value, corporate versus non agency, and some of the historic opportunities that you guys see at Angeloak.

Srinivas Prabhu:

Yeah, I mean, so in layman's term, when people buy credit risk in fixed income space, right.

Srinivas Prabhu:

So you can buy basically treasuries and you can earn your return.

Srinivas Prabhu:

And then if you want to get a little bit more than what treasuries give you, treasures are giving you four, you want to earn five.

Srinivas Prabhu:

Then historically, people went to corporate bonds.

Srinivas Prabhu:

That was where people invested.

Srinivas Prabhu:

And the first thing you do is you buy high grade corporate bonds.

Srinivas Prabhu:

These are companies where the credit rating is BBB or higher, or you go to high yield, which is companies that were below BBB.

Srinivas Prabhu:

So double b, single a.

Srinivas Prabhu:

And that was.

Srinivas Prabhu:

And if you go back in the eighties, nobody in the retail side bought high yield.

Srinivas Prabhu:

That was a institutional asset class then actually became more liberalized through the retail committee.

Srinivas Prabhu:

And now retail, it's a part of the asset allocation model, right?

Andre Sindate:

That's right.

Andre Sindate:

Yeah.

Srinivas Prabhu:

So I think what happens is even today when advisors are buying for their clients and they want to buy take on more credit risk, the first place to go is corporate bonds.

Srinivas Prabhu:

That's just now we know that.

Srinivas Prabhu:

That's just how it works.

Srinivas Prabhu:

You go to munis.

Srinivas Prabhu:

You go to high yield munis.

Srinivas Prabhu:

But really that's what sectors are happening.

Srinivas Prabhu:

So while that's happening, you have this mortgage sector that nobody thinks about is one of the largest markets in the world, right?

Srinivas Prabhu:

So the question becomes, why is this sector then cheap?

Srinivas Prabhu:

et srini, I saw this movie in:

Srinivas Prabhu:

Because underlying borrowers with defaulting, that's why it's cheap.

Srinivas Prabhu:

Yeah, but it's not the case today because then they look at it and there's not many delinquencies.

Andre Sindate:

So, no, the data is on your website.

Andre Sindate:

I mean it's.

Andre Sindate:

It's a phenomenal story.

Andre Sindate:

We can't talk about it enough.

Andre Sindate:

You gotta dig in.

Andre Sindate:

If you're an advisor, if you're a fiduciary, you got to dig into this stuff.

Andre Sindate:

Because when you start looking at the data and the comparison of historical trends and what's faulting and what's delinquent, I mean, there's a story there, and I wanted you to have the opportunity to tell it.

Srinivas Prabhu:

I think the way I tell people is hopefully this works out, is the difference between buying a corporate bond.

Srinivas Prabhu:

ng to refinance in October of:

Srinivas Prabhu:

Okay?

Srinivas Prabhu:

So it's a three year kind of a bond.

Srinivas Prabhu:

You bought a three year bond, okay?

Srinivas Prabhu:

If rates go up 100 basis points, you lose 3% of the value of the bond.

Srinivas Prabhu:

You know where up and down is.

Srinivas Prabhu:

Then you bought a pool of mortgage bonds.

Srinivas Prabhu:

And in:

Srinivas Prabhu:

People refinancing:

Srinivas Prabhu:

Right.

Srinivas Prabhu:

People move people in the job.

Srinivas Prabhu:

So if you have:

Srinivas Prabhu:

Right.

Srinivas Prabhu:

Let's just say simple math is four years, 25%.

Srinivas Prabhu:

But then you go to:

Srinivas Prabhu:

So that's what creates an opportunity to invest, because the spreads had to widen out to reflect the fact that the duration of that bond, just like a corporate bond, you know, the maturity is what it is.

Srinivas Prabhu:

They extend on it, the maturity gets wider.

Srinivas Prabhu:

Now, the reason we say it's the best, what are the better times to buy?

Srinivas Prabhu:

Is now you're buying those borrowers, underlying borrowers, assuming that majority will never refinance, and you're buying them at discounts.

Srinivas Prabhu:

So if they don't refinance, you collect your coupon, you're in a beautiful base, not many delinquencies.

Srinivas Prabhu:

And you collect your coupon if rates go lower over the next two years.

Srinivas Prabhu:

And even if 10% of those borrowers refinance, when they refinance, they give you 100 cents back.

Srinivas Prabhu:

Let's say you bought the underlying loans at $0.80 on a dollar, you get your total return.

Srinivas Prabhu:

So what we, this is a unique time where the total return, which is the opportunity with income.

Srinivas Prabhu:

Yep.

Srinivas Prabhu:

Plus price appreciation, we believe is the best in non agency mortgages relative to corporates.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

It doesn't mean corporates is bad credit.

Srinivas Prabhu:

The combination of achieving a total return is greater opportunity today in mortgages, agency and non agency versus corporate.

Srinivas Prabhu:

That's what we people.

Andre Sindate:

And that's a relative value trade, ladies and gentlemen.

Andre Sindate:

That's it.

Andre Sindate:

The relative value hedge fund.

Andre Sindate:

Forget all that.

Andre Sindate:

You just got a masterclass.

Andre Sindate:

Srini explained it.

Andre Sindate:

One other theme I want to pick up on and talk about before we wrap up, and I appreciate all the time today.

Andre Sindate:

Srini.

Andre Sindate:

Second lien mortgage market.

Andre Sindate:

So I'm going to just use myself as an example.

Andre Sindate:

My wife and I, three kids, we live out, you know, suburb of Smyrna.

Andre Sindate:

tgage, when we got our house,:

Andre Sindate:

I think Covid hits.

Andre Sindate:

There was an opportunity right before COVID maybe we locked in at sub 3%.

Srinivas Prabhu:

Yeah.

Andre Sindate:

Refinance.

Andre Sindate:

The idea of picking up and moving right now and shopping for a mortgage, much less shopping for a house for our growing family, it's just a non starter.

Andre Sindate:

We just don't even think about it.

Andre Sindate:

There are days when my wife would like to throw me out, but there's millions of people out there.

Andre Sindate:

We're blessed.

Andre Sindate:

We're very fortunate.

Andre Sindate:

I know that.

Andre Sindate:

And credit to my wife, I mean, she.

Andre Sindate:

She holds it down.

Andre Sindate:

But there's millions of Americans that are in that same boat.

Andre Sindate:

They're not.

Andre Sindate:

They're not going to go refinance for various reasons.

Andre Sindate:

And yet people always need capital.

Andre Sindate:

Yeah, there's always a mortgage or there's.

Andre Sindate:

There's always an addition you want to make.

Andre Sindate:

There's always a wedding you got to pay for.

Andre Sindate:

There's always college tuition.

Andre Sindate:

So the second lien mortgage, the second lien market, explain that opportunity.

Andre Sindate:

I don't know if my setup helps in terms of the story, but this is a market that I think people need to understand and invest potentially around.

Andre Sindate:

But to invest around it, if you're an advisor, you got to understand the setup.

Srinivas Prabhu:

Yeah, we know.

Srinivas Prabhu:

It's funny.

Srinivas Prabhu:

We talked to a group of advisors that were friends, and we talked to them in my trip to California, and they immediately got it because two of them, their wives were in real estate agents and they obviously were in sub 3% mortgages, and they got what this about.

Srinivas Prabhu:

So historically, people use second liens, or they call it helocs, home equity lines, credit to get more equity out of the housing.

Srinivas Prabhu:

And the financial crisis that was used to just lever up more and more and more.

Srinivas Prabhu:

So it was really not the best product and probably added to the financial crisis.

Srinivas Prabhu:

So people look at it with paint today that the only guys taking out these are the guys that are desperate for money and that is not true.

Andre Sindate:

No.

Srinivas Prabhu:

What has happened after the financial crisis, if you think about it, mortgage credit delevered, right?

Srinivas Prabhu:

y lower interest payments but:

Srinivas Prabhu:

I can do the math.

Srinivas Prabhu:

Your property is appreciated pretty decently nicely.

Srinivas Prabhu:

And so you're sitting on 50% loan to value, 60% loan to value.

Srinivas Prabhu:

Now I'm guessing you're operating from your house and took down a part of your house and your wife loves you, they earn a mortgage.

Srinivas Prabhu:

But she may say, you know what, you need to get out of that room because I need that room for myself.

Srinivas Prabhu:

And go make sure.

Andre Sindate:

Yeah, yeah.

Srinivas Prabhu:

Talk to your mother.

Andre Sindate:

Yeah, yeah.

Andre Sindate:

Oh, yeah.

Srinivas Prabhu:

So you're doing.

Srinivas Prabhu:

So you may need a pool or you may put an addition to a garage or pay for kids school.

Srinivas Prabhu:

So you're using the equity whether it's just like whether you want to sell a piece of your stock portfolio, for example.

Srinivas Prabhu:

Right?

Srinivas Prabhu:

It's the same.

Andre Sindate:

That's right.

Srinivas Prabhu:

So what we think is addressable market, I think the equity all in us housing is somewhere north of 20 million.

Srinivas Prabhu:

20 trillion, sorry, trillion.

Andre Sindate:

Yeah, yeah.

Srinivas Prabhu:

20 trillion equity, but what we call tappable equity.

Srinivas Prabhu:

This is not like people going to 100% loan to value.

Srinivas Prabhu:

What we call equity, which is taking a person from 50 to 70, 60 to 80, 40 to 60 is probably two plus trillion dollar asset class right now, annually overall.

Srinivas Prabhu:

Right.

Andre Sindate:

Got it.

Andre Sindate:

Let's call it two to $3 trillion.

Srinivas Prabhu:

And not all of that is going to be tap.

Srinivas Prabhu:

But that's the tactical market.

Andre Sindate:

But this is a big market.

Srinivas Prabhu:

Yeah.

Srinivas Prabhu:

This is hundreds of billions of eventual annual issuance.

Andre Sindate:

Oh, yeah.

Srinivas Prabhu:

And that market is just beginning.

Srinivas Prabhu:

There's few players in that.

Srinivas Prabhu:

Again, private investors.

Srinivas Prabhu:

And we feel as we're already doing it, we're already originating and purchasing it in our funds.

Srinivas Prabhu:

We are, we look to launch new funds around that in a private, private side.

Srinivas Prabhu:

But again, this is good, healthy borrowers.

Srinivas Prabhu:

You're still doing underwriting on these borrowers.

Srinivas Prabhu:

And because we have data from, we're not lending to the same borrowers we gave a first mortgage to, but we have the data on what this looks like.

Srinivas Prabhu:

We have data on home prices because we're originating in almost every state every day.

Srinivas Prabhu:

So the data helps you in this environment in an interesting way.

Srinivas Prabhu:

Also this may have allowed the Fed to keep the brakes on for a longer period of time because if you go in any weakness, you have all the housing.

Srinivas Prabhu:

Well, what caused the financial crisis was the housing safety.

Srinivas Prabhu:

This time is the housing.

Andre Sindate:

That'S right.

Srinivas Prabhu:

So we think this is a tremendously addressable market.

Srinivas Prabhu:

People are going to use it to do additions on their house.

Srinivas Prabhu:

People are going to use it to you balance payments, people are going to.

Srinivas Prabhu:

It's a relative value in the household.

Srinivas Prabhu:

Right.

Srinivas Prabhu:

What do I do?

Srinivas Prabhu:

Should I dip into my 401k?

Srinivas Prabhu:

Do I sell my stock portfolio?

Srinivas Prabhu:

Do I borrow on my house?

Srinivas Prabhu:

And those are the decisions that are being done on a daily basis.

Andre Sindate:

And that's a great segue.

Andre Sindate:

Going back to talking about the advisors big focus here about education, awareness, bringing them expertise and guidance.

Andre Sindate:

We're not selling anything here.

Andre Sindate:

I think there's a real opportunity for the advisor community to step back and look and say, how do I help bring solutions to my clients?

Andre Sindate:

And you just described one.

Andre Sindate:

If I have a $50,000 expense coming up, or my kids 7th grade, fourth grade, second grade college one day, hopefully for blessed, those expenses are out there.

Andre Sindate:

And we know the cost of college, we know the cost of healthcare.

Andre Sindate:

We know the cost of parents moving into assisted living.

Andre Sindate:

Those are out there.

Andre Sindate:

And yet one of the single biggest, if not the biggest asset most of these advisors clients probably have is the home.

Andre Sindate:

And the idea of saying taking on debt for some people is like, I wouldn't do that.

Andre Sindate:

Why would I do that?

Andre Sindate:

And yet there's an opportunity.

Andre Sindate:

And I think it's just about educating and becoming aware as advisors and then knowing who are, who are some of the folks out there in the market.

Andre Sindate:

If maybe I don't want to go recommend my client borrow, I want to invest in that market because I understand it.

Srinivas Prabhu:

Yeah, I agree.

Andre Sindate:

You know, very compelling.

Andre Sindate:

Yeah, very interesting.

Andre Sindate:

Yeah.

Andre Sindate:

So I want to wrap up with two final questions, Srini, because I know that we could go on and on, but out of respect, you're running a large organization.

Andre Sindate:

You give examples of innovating and continue to reinvest in the business.

Andre Sindate:

Fed Chair Jay Powell announced last week at Jackson Hole the annual symposium sponsored by the KC Fed.

Andre Sindate:

And I have to say that because that's my hometown go chiefs.

Andre Sindate:

I think his quote was something to the effect of it's time to start thinking about rates, you know, or cutting rates.

Andre Sindate:

So more of a macro question.

Andre Sindate:

You know, when you hear that you guys are paying attention to this, it's part of the core DNA of the businesses, understanding what's going on in the housing market, the mortgage market.

Andre Sindate:

What's your posture now when you think about the macro as it relates to Angelo, your big team, and kind of growing and building these relationships, what's the setup looking at yeah.

Srinivas Prabhu:

So, you know, look, we, you know, in fixed income land, right?

Srinivas Prabhu:

We had a honeymoon, and I tell this to my guys all the time.

Srinivas Prabhu:

We, after financial crisis in the first two years were difficult, but when rates are at zero, anything in fixed income was working, right?

Srinivas Prabhu:

Nothing.

Srinivas Prabhu:

Nothing.

Srinivas Prabhu:

Yeah, not working.

Srinivas Prabhu:

Fixed income.

Srinivas Prabhu:

So part of the growth of Angelo is also the timing.

Srinivas Prabhu:

And, you know, you got to be lucky sometimes.

Srinivas Prabhu:

So you cannot say everything.

Andre Sindate:

Absolutely.

Srinivas Prabhu:

Our amazing work and smartness, timing was great.

Srinivas Prabhu:

And the Fed allowed a lot of the fixed income community growth.

Srinivas Prabhu:

People could just buy credit because Fed was a backstop.

Srinivas Prabhu:

I think:

Srinivas Prabhu:

We probably had our toughest year as a firm, but it also allowed us to grow and build out new solutions.

Srinivas Prabhu:

So that's the business side of it.

Srinivas Prabhu:

But where we are in the fixed income, what I tell guys is, yes, fed as macro, we are going in a slowdown.

Srinivas Prabhu:

None of us knows a soft landing.

Srinivas Prabhu:

We don't know that.

Srinivas Prabhu:

But if you had to ask, my most likely, we are in a soft landing.

Srinivas Prabhu:

Our team actually thinks we are more in a hard landing.

Srinivas Prabhu:

But maybe we have fixed income.

Srinivas Prabhu:

So we always think hard landing our clients is that expect the worst.

Srinivas Prabhu:

So if you're buying an asset today, look at a total return, you're getting paid a lot more to be wrong.

Srinivas Prabhu:

So if you go in hard landing and credit spreads widen out, obviously fed is there to lower rates, but your coupon is offsetting your price loss.

Srinivas Prabhu:

And that's what people have seen over the last nine months.

Srinivas Prabhu:

So from a risk management, I think we have to manage to a hard landing.

Srinivas Prabhu:

That's what we paid to do.

Srinivas Prabhu:

We're not paid to manage to a soft landing.

Srinivas Prabhu:

I think the Fed is.

Srinivas Prabhu:

We can say they're late or not.

Srinivas Prabhu:

I'm not going to debate that.

Srinivas Prabhu:

But look, like the way I say it is, if you keep rates high enough, and look, we are in housing, and housing is in a different place.

Srinivas Prabhu:

But if you keep rates high enough, you cannot shock corporate borrowers, commercial real estate borrowers, small business borrowers, who are borrowing at 0%, they build their businesses based on 0%, and you cannot shock them at 8% and keep it there for seven, eight years.

Srinivas Prabhu:

You just can't do that.

Andre Sindate:

No.

Srinivas Prabhu:

Yeah, right.

Srinivas Prabhu:

And you cannot say we borrowers should default.

Srinivas Prabhu:

No, you built, you built a whole cycle around zero interest rate where people build their businesses, hire people.

Srinivas Prabhu:

So you have to give people an opportunity if you're 100 people, you lay off 20 people.

Andre Sindate:

Yeah, they got a de lever and, yeah, they got to manage that.

Srinivas Prabhu:

Yeah, I think the Fed, I believe these are sophisticated people out there.

Srinivas Prabhu:

So I think the Fed understands that.

Srinivas Prabhu:

So I think we're going to an environment still of delevering.

Srinivas Prabhu:

Even if rates are going down as bid, as commercial real estate will start moving around, people will still have to take losses, but maybe not significant losses, and there'll be a movement of this.

Srinivas Prabhu:

So we feel we are entering a healthy environment, but selection of credit is going to become important.

Srinivas Prabhu:

And that's the main theme that we tell people.

Srinivas Prabhu:

Unless the Fed goes back to zero, which I don't believe.

Srinivas Prabhu:

And if a high net worth individual or an advisor is making a healthy return on his core bond fund, what is the value proposition?

Srinivas Prabhu:

And it has to be relative.

Srinivas Prabhu:

So I think fixed income will have a great 510 year run at this point across the board.

Srinivas Prabhu:

But we have to prove ourselves.

Srinivas Prabhu:

We don't have the Fed backstop anymore and we have to deliver risk adjusted returns to our clients.

Srinivas Prabhu:

I mean, that's just the environment.

Srinivas Prabhu:

And I think this is a healthy environment because we have been in an unhealthy environment where anytime when there was a weakness, Fed would just buy assets.

Srinivas Prabhu:

So why would you, you bought the worst asset?

Srinivas Prabhu:

Because Fed used to backstop.

Srinivas Prabhu:

And I think that environment is gone.

Srinivas Prabhu:

So I think it's great when we look at underlying borrowers, we have to look at them, but we have to also look at how we finance on a private side, but on a mutual fund side is relative value, I think.

Srinivas Prabhu:

And so I think, I think we're going into an environment where I believe there's a slowdown happening.

Srinivas Prabhu:

I don't know how fast or furious it will be.

Srinivas Prabhu:

We're not talking about:

Srinivas Prabhu:

That's not what we're entering.

Srinivas Prabhu:

But weaknesses can exaggerate very quickly or exasperate very quickly.

Andre Sindate:

Yeah.

Andre Sindate:

So that's what, well, that's helpful.

Andre Sindate:

That's helpful.

Andre Sindate:

And I, you know, I, like I said, I've said it before, but I mean, I've gotten some great updates over the last several years through, through you guys, the website, the content that you put out.

Andre Sindate:

You've really leaned into that education, which is critical.

Andre Sindate:

I mean, you know, education, information, inspiration, that's my tagline here.

Andre Sindate:

And so there's always an end to these podcasts where they ask, what are you reading and what do you do in your free time?

Andre Sindate:

I'm not going to do that.

Andre Sindate:

I don't like to do that.

Andre Sindate:

Nothing against.

Andre Sindate:

I like to ask more the question for I like to leave with that inspiration.

Andre Sindate:

If you were asked to come back, maybe you have been, and talk to the students at our, at Georgia State College and university in Milledgeville.

Andre Sindate:

You're talking to a finance undergrad class, let's just say.

Andre Sindate:

And they're wondering, how do I do that?

Andre Sindate:

When you think back on your journey so far, and I'm not dating you and saying, okay, he's going off into the sunset, you seem like there's a lot to do.

Andre Sindate:

And I look forward to watching that journey selfishly, because you're here in Atlanta where I'm based.

Andre Sindate:

But what would you say to those folks?

Andre Sindate:

What are the things maybe you're saying to your younger employees as you grow the business that matter?

Srinivas Prabhu:

Yeah, I mean, we have a very, and I love it because, you know, as a part of what I wanted to do, because I knew how hard it was to get an internship when I was at Georgia State University.

Srinivas Prabhu:

So we do a pretty decent sized internship program.

Srinivas Prabhu:

And what I tell them is, you know, what I would tell everybody in school is a, you know, you know, life is wrong and, and you don't have to peak in your twenties.

Srinivas Prabhu:

That's not how it works.

Srinivas Prabhu:

And so sometimes there's this nervousness when you look across and you see maybe some of your peers growing faster in their career or being.

Srinivas Prabhu:

It's all about who you are.

Srinivas Prabhu:

A lot of my friends went into it industry because that was the immediate way of making more money.

Srinivas Prabhu:

And to be honest, I stuck with finance because it was easy to go into it because that's where the money was.

Srinivas Prabhu:

That's where visas used to be given to non us students.

Srinivas Prabhu:

I said, no, I like finance.

Srinivas Prabhu:

I want it to be, I enjoy finance.

Srinivas Prabhu:

And so you have to be patient.

Srinivas Prabhu:

Two, one of the mistakes I made is, you know, you have to network and talk to professors.

Srinivas Prabhu:

It's never the best.

Srinivas Prabhu:

The worst thing you can get is a no.

Srinivas Prabhu:

And you have to ask, you have to send out hundreds of resumes out there and network because it's hard to get a job unless you come from prestigious.

Srinivas Prabhu:

And even they would tell you it's difficult, right?

Srinivas Prabhu:

Yeah.

Srinivas Prabhu:

They also want to compete just like we want to compete.

Srinivas Prabhu:

But then, you know, just, you know, work hard and learn because, you know, when, when you and I were starting, you know, like, we used to have one Bloomberg for 20 people in the firm, even to college students.

Srinivas Prabhu:

I think.

Srinivas Prabhu:

I think they have Bloomberg for university students now.

Srinivas Prabhu:

Yeah, I.

Srinivas Prabhu:

The amount of information you get today, even while you're in college, if the kids can just spend 2 hours in the morning on a weekend cup of coffee and just absorb, the more knowledge you absorb, the better off you're going to be.

Srinivas Prabhu:

And then you just grind.

Srinivas Prabhu:

And like I said, you don't have to peak in your twenties.

Srinivas Prabhu:

With modern medicine, I think we all will live longer anyway.

Srinivas Prabhu:

So you might.

Andre Sindate:

Yeah, yeah.

Srinivas Prabhu:

I said, people, look, you can used to be careers, used to be by 40 you have made your progress and then you go towards that.

Srinivas Prabhu:

That's not how it works anymore.

Andre Sindate:

No, you're at it.

Andre Sindate:

That's, that's amazing advice.

Andre Sindate:

That's great.

Andre Sindate:

I appreciate you.

Andre Sindate:

I have one extra credit question.

Andre Sindate:

You're a tennis player.

Andre Sindate:

The US Open just got underway.

Andre Sindate:

Not without scandal or number one ranked players.

Andre Sindate:

Scandal about did he use the enhancement drugs or not.

Andre Sindate:

I want to ask you more.

Andre Sindate:

Are you going to go to the US open?

Andre Sindate:

Have you been and do you still play the game?

Andre Sindate:

Because tennis is huge in Atlanta and just curious if you get out and still hit the corner.

Srinivas Prabhu:

All my boys play, so I play with them.

Srinivas Prabhu:

I cannot keep up with them anymore.

Srinivas Prabhu:

I think I can manage my 13 year old still and my 14 year old.

Srinivas Prabhu:

I don't play much outside, but I love playing with them.

Srinivas Prabhu:

That's a part of what we do as we hit on the weekends.

Srinivas Prabhu:

I mean, I'm very regular at Us Open.

Srinivas Prabhu:

I'm not going this year.

Srinivas Prabhu:

Just watch one of the years when I'm not.

Srinivas Prabhu:

I'm excited.

Srinivas Prabhu:

It's going to be a good comment.

Andre Sindate:

Yeah.

Srinivas Prabhu:

So we'll see.

Andre Sindate:

That's cool.

Andre Sindate:

That's great.

Andre Sindate:

Well, this has been, I thought, just a fascinating conversation, like a whole tour and history of Angel Oak.

Andre Sindate:

And I really do appreciate the extra time.

Andre Sindate:

Srini one, because I wanted you to have the opportunity to tell the story of Angel Oak, but also to offer some insights advisors that are very practical, timely, and also to managers and even younger professionals that are out there and aspiring to enter the industry or to work with managers that are growing.

Andre Sindate:

20 billion is certainly big and I expect in a year or two it's going to be a much bigger number.

Andre Sindate:

So congratulations to you and Mike and the rest of the team over there at Angelo.

Srinivas Prabhu:

And really, I appreciate the opportunity you gave me.

Andre Sindate:

A.

Andre Sindate:

Yeah, well, ladies and gentlemen, Sriniv Prabhu, co founder, managing partner, co CEO, Angel Oak Capital Advisors.

Andre Sindate:

To learn more, you can go to their website, www.

Andre Sindate:

Dot angeloak Capital.com.

Andre Sindate:

and with that, we'll sign off.

Andre Sindate:

Srini, thank you so much.

Andre Sindate:

For joining me today on Atl alt.

Srinivas Prabhu:

Thank you so much.

Srinivas Prabhu:

I appreciate it.

Srinivas Prabhu:

All the best.

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About the Podcast

ATLalts
Alternative investments
ATLalts is a podcast for those interested in learning about alternative investments and alternative asset classes through interviews with investors, asset owners, and industry practitioners. ATLalts explores venture capital, private equity, real estate, credit, private debt, distressed, hedge funds, commodities, FX, currencies, infrastructure, structured products, digital assets, multi-alternatives, secondaries, collectibles, farmland, timberland, and more specialized alternative assets such as life settlements, aircraft leasing, royalties, litigation funding, and marine finance.
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Andres Sandate

Andres Sandate is the host of ATLalts. Andres has extensive knowledge of alternative investments with professional experience working in asset management, capital markets, securities, and investment banking going back nearly 20 years. He has held senior leadership roles working in private credit, hedge funds, private equity real estate, multi-asset alternative investment and placement agents. Andres is a Registered Financial Advisor with Gramercy Park Wealth Advisors, LLC and GPWA, LLC, Member FINRA/SIPC and holds the Series 7, 66, and 79 FINRA licenses. He is Founder and CEO of Endurance Strategies, LLC (www.endurancestrategies.com) and President and Member of the Board of Directors of the Southeastern Alternative Funds Association (www.theSEAFA.com). Andres earned an MBA and a BS from The University of Kansas and is a native of Newton, Kansas. Andres and his wife Heidi (McElroy) Sandate have three school-aged children and reside in Smyrna, GA (Atlanta). Email andres@atlalts.com