Dan Loeb on Activist Investing, AI, and Third Point's Credit Playbook

Dan Loeb

Yeah, welcome.

Dan Loeb

I wish I could say I have a Claude Code that has organised all the information in one place and I go through it all. But I check the news and see what's relevant for the economy and for our positions. I try not to get too obsessed with the minute-to-minute stuff, because that will drive you crazy. I try to be a little more tactical than strategic. People will ask me about macro — what's important? When people think about macro, they think about all the typical stuff the government reports: growth, unemployment, inflation, rates, currencies, where gold is, where crypto is. I think all that stuff is trumped right now by two things. Where's oil — and that's going to be dictated by what happens in the war and geopolitics — and what's happening with AI, both on the spending front, the infrastructure, and what the impact of that is going to be on society and on the economy. Those are the main things I'm focused on really trying to deeply understand.

Dan Loeb

I'm not natively a tech person, but given where the world is today, there was a time when you could say, 'I'm just going to punt on tech and focus on industrials and consumer and healthcare or whatever.' I think you have to be a tech person today. It's a big and growing and compounding part of the economy. It affects everything else. So as best I can, I try to talk to smart people regularly. Jensen has laid out well — everybody talks about the AI stack — starting with power and energy at the bottom, then chips and infrastructure, moving up through LLMs and software and applications, and how that plays through. That's a good mental model to think about all of it. We've played different elements of that through industrials and infrastructure and hyperscalers.

Dan Loeb

Look, right now the SOX is up 40%. I don't think I've ever seen an event like that. If you go back a few years, semiconductors were kind of left for dead — they were like roadkill in the market, people just weren't thinking about them at all. That all changed when Nvidia reported its March results three years ago. You either were there, or — it's okay if you weren't, you could quickly play catch-up — but that was the big event. Now it's about the Nvidia, the Trainium and the TPU ecosystems, how those play out, relative strength, how that flows through the different hyperscalers, and then the foundational models. I try to think in terms of that stack, but I also think about what's going on in probably the three most consequential companies today: Nvidia, Anthropic, and Elon world — all of his companies collectively. There are a lot of ways to look through the prism, but for me that's been an effective way to think about how things flow through.

Dan Loeb

The roots of Third Point really come out of my experience as a credit investor and my time at Jefferies. Jefferies was my laboratory for studying some of the best investors. My clients were people like David Tepper, who had not yet started Appaloosa but then started Appaloosa; guys like Eric Mindich, who ran the trading desk at Goldman; firms like Angelo Gordon, Farallon. So I was able to watch firsthand how the best — at that point we'd call them distressed debt or event-driven or risk arbitrage investors — how they worked. My natural first lens was to think about credit, but on the equity side to think about it as a hierarchy and a mental model. I thought about it through the lens of event-driven investing. Merger arbitrage a little off to the side, because that's less directional — it's really just a mathematical exercise in earning a return and the risk you're taking. But in terms of a fundamental investment lens, it would be best characterised by those types of firms.

Dan Loeb

The best book, which I think is still relevant today, would be Joel Greenblatt's classic, You Can Be a Stock Market Genius. The original title was You Can Be a Stock Market Genius Even If You're Not That Smart.

Dan Loeb

He took that part out, because investors don't like to think of themselves that way. But it's a brilliant book, and most of the people I know in that world use it as their framework. It talks about spin-offs, demutualisations, privatisations, post-reorg equities. That's how I thought about things. I was totally unfocused on business quality, the moat, return on capital. I barely thought about relative multiples for different kinds of businesses. All I thought about was: am I buying something really cheap that has the following characteristics? A new security is often created, priced and valued very cheaply because of a lack of liquidity. When a company spins off a subsidiary, there's a new stock being born. The existing investors — usually mutual fund types, or folks for whom it wasn't in their sector — just weren't doing the work, so they'd routinely sell it. There'd be this liquidity gap. If you could figure out the value of the business, those tended to be good trades.

Dan Loeb

That was exacerbated by the fact that the management teams would go out, in the case of a spin-off, and do a road show presenting a very conservative view. Some might say they'd sandbag the numbers. Why? Because people are creatures of incentives. Their incentive package would be set at the time of the spin-off, so they'd come out very conservatively. But there's more. The companies themselves were inefficiently operated within these larger businesses. Margins were lower than they should have been, sales were probably less, the management team didn't have the incentives to optimise. So that was an incredible business model. And that dynamic applied to spin-offs, privatisations, demutualisations, newly created companies like Visa or Mastercard. It was underappreciated for a long, long time, and you could generate really excess returns. Then we'd take that basic framework and apply it to other things, like the synergies when you combine two companies in a major merger — something like Union Pacific, Norfolk Southern. From 1995, when we started the fund, up until the early 2013 to 2015 period, that was our bread and butter.

Dan Loeb

No, they still exist all the time. The real opportunity today is overlaying that understanding with a business-quality lens. Let's talk about how my business evolved. A lot of the people who have underperformed, or haven't survived the last decade or so, were really stuck on the idea of deep value, low multiples, and being stubborn about how they viewed businesses — less flexible about moving into higher-multiple or growthier companies. We started to look at companies that grew faster, that had better returns on capital, that were quote-unquote quality businesses. That opened up a whole new world for us. I'd call that the other significant part of what we do: quality investing, thematic investing. That's when we started to organise our team around industry experts, less around generalists and transactions.

Dan Loeb

Two of the most consequential books I read in that area: The Outsiders — which talks about managers who understand capital allocation along with great operations, companies like Danaher, TransDigm. And the most influential and eye-opening book to me was Quality Investing by Cunningham. That really lays out the idea of super-high-quality businesses with good moats and high return on capital that you might want to own for many years. What happened last year was interesting: a lot of these apparently super-high-quality companies had probably their worst year, because of the disruption of AI. A lot of them very rapidly became less high-quality.

Dan Loeb

I remember in 2013 I was at a dinner in Davos, which I don't go to anymore. It was a Goldman Sachs dinner, and Eric Schmidt gave a talk. Go back to around 2013 — when you look back, it was almost quaint in terms of technological innovation. This was around the time the Uber app came out and the iPhone was starting to explode. The SaaS revolution was at the front end. Companies like Microsoft were starting to find their footing. Think about the period from the dot-com bubble through the GFC. The '90s were a time of incredible technological innovation, and yes, stuff was happening, but I don't think we felt there was a lot going on. The sexy industries at times were natural resources, energy, financial services. So Schmidt said to the room: it will be your natural tendency to think that this increase in technological innovation and disruption and change we've experienced for the last couple of years is an anomaly, and that things are going to go back to a steadier type of innovation and growth. Hold on to your seats — things are only going to accelerate from here. And he was really right.

Dan Loeb

You could have said that again in 2017. You could have said it again in 2020. You can really say it right now. It has just continued to logarithmically accelerate, and we're at the front end of AI. We're just going to have to learn to live with this. I don't know that, from an evolutionary standpoint, our brains have been able to deal with things like social media and some of the other changes. It's going to take a lot of work to prepare ourselves as a species, even mentally, to ingest all this information. Brad Gerstner talks about the book Essentialism, and I think we have to adopt that idea, because you can't do it all. You have to figure out the things that are most important and most relevant to what you do.

Dan Loeb

Honestly, I have no idea. I don't even know what it's going to look like in six months or a year. I think we're okay for the next couple of years. Companies will need to raise money. The securities created from that will need to change hands somehow. People want to save, people want to invest, people need to borrow. You always need some human interface in the middle of that. It's highly unlikely there will be a completely AI-managed capital system.

Dan Loeb

I talk a lot about investment books — there's so much wisdom in books for investing. One of my favourites, Reminiscences of a Stock Operator, quotes Ecclesiastes: there's nothing new under the sun. And human nature — the question is whether AI will take human nature and the flaws in human emotion out of the investment process, or whether AI might even adopt some of that under the name of risk management or managing downside. In theory it could take it out, but it will test the theory that there's nothing new under the sun, and the thing that doesn't change is hysteria, bubbles, panics, and the extremes of human nature, both optimistically and pessimistically. Think about this year: why is the SOX up so much? Because all the evidence pointed to the fundamentals in semiconductors, semi-cap equipment, memory — everything around it — being super strong. So what happened? Expectations were too high. In the same way that Nvidia after Q1 three years ago had a monster quarter and people piled on and it kept going up, you had a couple of quarters where it put up solid numbers, then shockingly good numbers, and the stock tanked, and the whole sector went down. People were scratching their heads: why do the numbers look so good, and stock prices keep going down? The same thing happened with Micron — a phenomenal quarter, up 80%, way ahead of expectations. The stock went up a little because expectations were too high, and then it went down.

Dan Loeb

That happens a lot. It happened to Meta a couple of years ago — good quarter, stock went up like Wile E. Coyote, there was no one else to buy the stock, and it tanked. So that's where the human element comes in: to understand and make those tough trading decisions when fundamentals are going one way and stock prices are going the other, and to take the pain of losses in the short run. The advantage that someone like me — a fundamental investor who doesn't make trading decisions based on computers — has is that there are still a lot of market irregularities caused by very good strategies that collectively create anomalies. You have quants and CTAs, you have pods. They have a great strategy for them and their investors, but it causes unusual behaviour. Fundamental investors believe that, as Warren Buffett would say, if a stock goes down you celebrate it, because it's a chance to buy more at a better price. But the pods have risk metrics that force selling on the way down. They do the opposite of what's rational for a long-term investor, because it's rational for their business model. So those things continue to create opportunities for fundamental investors.

Dan Loeb

Yeah. But then you'll have corporate transactions that create opportunities. It feels like there's always something. There are failures, there are credit cycles, there are bankruptcies. It's hard to imagine the computers sitting on a creditor's committee, working through the capital structure and being able to transact. If you think about a continuum of public securities and private equity, the AI will not do private equity — you always need people to do deals. And the stuff in between requires a lot of negotiation, human interaction, high-touch work — private credit, or working through a restructuring. You'll probably always need human beings to do that part of the investment business.

Dan Loeb

Actually, my dad, who was a securities lawyer, was an expert on corporate governance and wrote books about it, so I always heard about it at home. He's the first person I ever heard talk about corporate responsibility. He was on the board of Mattel and later Williams-Sonoma. He'd go visit the factories where they were sourcing materials and wanted to make sure they were ethically sourced and the workers treated well. He was ahead of his time on that.

Dan Loeb

My dad was incredibly funny, warm, irreverent, really smart. He was the only son of two immigrants from Europe. My grandmother, his mother, came from Poland in 1914; his father came from Romania around 1898. Incidentally, his mother's youngest sister — the first of that family born in this country — founded Mattel Toys. He was a self-made person. He went to UCLA, did well, went to Harvard Law School, and spent most of his career at one law firm.

Dan Loeb

We have an incredible system — let's start with that. There's something beautiful about the American capitalist system in the way it creates boards of directors that have a role within both capitalism and a democratic system, where the board is answerable to the shareholders and responsible for accountability for management, setting strategy, and the key financial decisions. The shortcomings in governance happen when board members lose sight of their duties as fiduciaries, or when the composition of the board is such that they aren't equipped to carry out that duty — a lack of deep knowledge, or intellectual or talent diversity — or when they think excessively about things other than their duty to shareholders. Not to say the board doesn't have other responsibilities, but ultimately they should feed into creating shareholder value. If you go back to Milton Friedman and things Warren Buffett has said, of course boards care about the communities they serve, the products, the employees, proper conduct. All those things are very important and not inconsistent with creating shareholder value — in fact, they're part of it. A few years ago the Business Roundtable said we're no longer going to say the board's responsibility is primarily to drive shareholder value — it's this thing and that thing and the other thing. I think that was a distraction from their real duty, and it didn't recognise how all these things go together.

Dan Loeb

The bad governance I've seen comes from a number of things. One, they let their loyalty or relationship to a CEO who's not up to the job overshadow their duty to shareholders. That's probably the main thing. It's important to understand that boards don't run the companies — the board is strategic, not tactical. But if the company isn't allocating capital well, or isn't holding the management team responsible, or there are obvious things that should be done differently, that's when we can come in. Most of the time, in our experience, we've been able to work with existing boards, redirecting them and offering solutions — sometimes we don't even have to get on the board to get those things done. You hear about the extreme cases, where our presence is actually needed on the board to shake things up.

Dan Loeb

All great writing is really about clear thinking — organising your thoughts and communicating them clearly to get a desired outcome. You can also use writing to influence. In our case it's been helpful in getting the attention of other shareholders, sometimes the board itself, sometimes media attention focused on a board. In activism you've got a few different levers. You have the financial lever — obviously we can make a bid for the company. You have legal levers — proxy contests, litigation, information requests. And social pressure is actually a very effective way, and the best way to put social pressure on a company is through writing and PR efforts around the company.

Dan Loeb

That's interesting. It certainly was the case at Sotheby's. But board members often feel a sense of status for being on these boards, and that in itself needs to be dispelled. If you're on a board because you're getting status or income, and that's your primary reason — not representing shareholders — that's where we come in, to disintermediate that and increase the cost of doing it. Sotheby's was an interesting company — a pretty small target for us, actually a good example of what you're talking about. Although it was public, it wasn't really run for the shareholders. It was run because people felt it was a high-status business. It had been mismanaged. It hadn't recovered from an antitrust violation that spilled into criminal charges brought against the company and some individuals. The business itself was good, but run unbelievably unprofitably. The company had been around since the 1700s, and some of the business practices hadn't been updated since. We bought 9.9% of the company. We went after the board, but really just wanted them to implement some basic business practices we thought would be better.

Dan Loeb

We didn't think the CEO there was the right guy. He'd come out of the rug division, didn't have a particularly deep knowledge of art, didn't have deep relationships with the collectors. We gave him a shot for a year, and then the board came to realise he wasn't the right guy. We brought in a guy named Tad Smith, who was terrific, from MSG. He cleaned up the operations, improved the technology, and then they sold the company.

Dan Loeb

Yeah, a good result.

Dan Loeb

There's probably some of that in the sub-2-billion market-cap space, and not necessarily even bad management, but maybe B+ management not optimising. But what we're finding is that it's almost a negative selection process. We'd much rather invest in a great company with awesome management doing all the right things, and cheer them on, than find something that but for mismanagement would be worth a lot more. Because what you find is that if the things you've identified are badly run, there are probably ten times more things that are badly run. It gets to be a morass.

Dan Loeb

Israel is an interesting market — a nichier market. We had one of our top investments there, which, despite the war, has been one of the best-performing stocks in our portfolio. In terms of the big markets, there's a lot going on in Korea, Taiwan, Japan — I'm probably more bullish on them as a hunting ground to find great companies. The European markets are tough right now given the regulatory environment; they have a different attitude about business and capitalism. We're invested in a couple of businesses there, Rolls-Royce, ASML, but the companies in Europe dependent on the local economy are more challenged.

Dan Loeb

At one point we owned 7% of Sony. There's a list of companies we at one point owned significant stakes in that, had I not sold, would be worth in the mid-to-upper single-digit billions of dollars.

Dan Loeb

Yeah, we all have that. We took two runs at Sony. The first time, it was basically a conglomerate — it had the Sony studios, a semiconductor business, a life insurance business, and all the consumer electronics. We advised them to separate these businesses — at a minimum take out the insurance business, which had no place in it. We met with the management team, had a big deck we went through, and at the end of the meeting we told them, in the interest of transparency, that we'd shared our investment thesis with the New York Times. Andrew Ross Sorkin wrote the story. They went into a panic, and Andrew agreed to embargo the story until the Japanese market closed. They'd pre-arranged for us to go on a tour of their innovation centre. Before we went in, when we told them there'd be a story, the CEO at the time, Kaz Hirai, came out and said, 'You told the New York Times?' I said, 'Yeah, but just the New York Times, nobody else.' He said, 'Okay, just the New York Times.' It was wild. We were walking around the innovation centre looking at our BlackBerries, and the story went everywhere. It ended up being a really good investment. They pushed back on everything we recommended, but over about five years they've done many of the things — they've broken out the semi business, they partially spun out, or plan to spin out, their financial services business. The one thing I learned is that activism in Japan is really hard.

Dan Loeb

Here's what's interesting about activism in Japan. On one of our first trips we met with the prime minister and his right-hand man, Suga-san. I told him I'd write a paper explaining why activism was good for Japan as a country. They'd released something called the three arrows — fiscal, monetary, and restructuring. My suggestion was that they needed to include corporate governance, and in particular a focus on return on invested capital, as part of the three-arrow strategy. I came back to New York and met with Larry Lindsey and Niall Ferguson. We wrote a three-person paper — they did most of the writing — for AEI. It was then picked up as an editorial in the Wall Street Journal, and they adopted it. It was pretty cool. The government actually really wants the companies to do this; it's the management teams that are more entrenched, because the shareholders and the government want it. You've really seen progress since we first went over there — they're breaking up some of the cross-shareholdings, penalising companies that trade at discounts to book value, and other things. They're definitely moving in the right direction.

Dan Loeb

First of all, Third Point is a whole collection of businesses. My main focus is on the hedge fund strategy, which started at three million and is now about $9 billion today. That fund itself is about 30% credit in total. The rest of the portfolio is primarily equities. Our equity book is generically around 110 long by 30 or 40 short, but that can be all over the place. Going into the war we really dialled back our risk, and for the first time since 2009 we did have more credit exposure than equity, but we very quickly took that back up. Across the fund we have a CLO business with about $7 billion in it. Within Third Point itself we have close to $3 billion in structured credit and corporate credit. We have an insurance company, for which we manage about a billion dollars in credit. We have a couple of billion dollars in asbestos liabilities we manage in its own pool. And we just started a private credit business, which is small.

Dan Loeb

Well, we haven't even talked about the fact that we have a venture capital business. I've worked in venture capital, in risk arbitrage, in credit, in equities. Having a view of value, and thinking about valuing enterprises — whether they're earlier-stage, mid-stage, or mature — and looking to invest in whatever the fulcrum security is in that enterprise. Obviously, for an early-stage company the only fulcrum is the equity.

Dan Loeb

The one that's going to have the best risk-reward.

Dan Loeb

It's usually used for companies that have debt and equity, going through a restructuring of some sort. Do you want to be in the equity, the junior debt, or the senior debt? When Credit Suisse was going through its troubles and being bought by UBS, you could invest in the preferred shares, the holdco paper, or the opco paper, which was most senior within the capital structure. The fulcrum there was actually the holdco paper, which had the most upside — but the opco paper also did well. The pref was wiped out, so that was the wrong place to be. There are always different interesting places within the capital structure to play, and having a comprehensive view of these companies gives you a great vantage point to make alpha-generating decisions.

Dan Loeb

Let me give you two examples. We had good enough knowledge of Twitter and xAI to understand the equity value of both businesses, without making a decision on whether we wanted to own equity in xAI, and having not participated in the Twitter deal. Two financing transactions came up, one for xAI and one for Twitter. The Twitter debt was a resale of the financing debt offered when Elon bought the company. Morgan Stanley sat on it for a while — it was deep underwater. When it got close to par, they decided to sell it. Most credit investors were scared to buy that, even though it was around 96, 97 cents on the dollar, yielding around 12%. We were comfortable enough with the underlying value of the business and the fundamentals that we made it, at that time, our largest credit position. And when xAI did a debt financing, very few credit people wanted to play, because there was no cash flow — $2 billion in revenues and a $20 billion enterprise value — but we were very comfortable this was a real business. We looked at them as credit investors, but we were also able to bring in the resources of our private investing knowledge.

Dan Loeb

Let me push back on that. I'm the portfolio manager of the hedge fund. But private credit, CLOs, structured credit, the high-yield business — they all have their own PMs. I'll come in if there's an interesting opportunity — we supersized both Twitter and xAI when I got involved — but I'm not even on the investment committees of those businesses.

Dan Loeb

I think the setup's great. You can still buy Nvidia — maybe the multiple's slightly higher right now, but there's such a catch-up trade in Nvidia at 15 times 2027, 12 times 2028, for the most dominant, very fast-growing company at its size. I looked through our whole semis, cap-equipment, hyperscaler portfolio, and my instinct was going to be, okay, we've got to take profits here. But I looked at the valuations and the growth rates, and unless you're really draconian and think the AI world is going to roll over in 2031 or 2032, I think it's some of the most attractive — the most attractive sector right now. It's where the bulk of our capital is invested.

Dan Loeb

If you don't believe the capex numbers are going to yield a return, then you'd have to believe they're just flushing money down the toilet and won't get a return — because the earnings are really strong, and the multiples on that. They might say, yes, but the cash flow after capex is thinner. But these are companies, for the most part, investing money off their balance sheets and generating enormous amounts of cash. So it's very different from the dot-com bubble, which we were short going into and had good numbers in those years. You just don't have the valuation bubble now on these companies that you had on those companies back in those days. You look at Anthropic's revenue growth, the adoption and usefulness of its products, the anecdotes about the next generation and what that's going to do — you can make a good argument we're barely scratching the surface. There are so many layers of corporations that are just getting started. So I'm in the optimist camp in terms of seeing this as something that's going to play out.

Dan Loeb

Investing in Danaher has been the most instructive, because it's truly one of the best-run businesses, and one of the first experiences I had investing in a super-high-quality business that internalised the best practices of creating a corporate operating system. My partner then, Munib, and I actually went to Danaher and got them to boil down their five-day DBS — Danaher Business System — training into a one-day version for us. It was really instructive, a really good investment for about four years, watching them incrementally improve business quality by shedding lower-quality businesses and buying higher-return-on-capital, better-quality, higher-margin businesses, shifting from general industrials into healthcare. I learned a ton. It then stopped working as an investment, because of COVID — surges in orders, increases in inventory, a correction, and all the benefits from the surge in demand became a headwind, and they still haven't come out of it. We actually sold it, and recently, with the selloff, got back in, but in a small way. And it's been incredibly instructive watching the diaspora of executives.

Dan Loeb

Yeah, Larry Culp was there. There have been a lot of others — the guy from Ingersoll Rand, which has been a well-run business.

Dan Loeb

Cult is a little too strong a word to describe it, but they had a very strong corporate identity and culture. It's one thing to say we're a Kaizen company dedicated to continual improvement; what they have is a whole system of implementing improvement across the organisation. One of my big takeaways from that day: they hold people very accountable and individually show when people are underperforming. But the interesting thing is that because these things are all addressable and fixable, when they found someone underperforming, it was celebrated rather than shamed — look at all these things we can fix. And they did, over and over again, in operations and working capital. It was really cool to walk around a place and see everybody on the same wavelength trying to accomplish that.

Dan Loeb

We actually started an insurance company, de novo, in 2010. We were backed by myself, Kelso, and Pine Brook, and we started a Bermuda-based reinsurance company. The thesis was: we'll have an executive do these reinsurance deals, we'll invest the float all in Third Point and in treasuries — a barbell — then we can defer taxes and get leverage on our capital. Greenlight Re at the time was trading at 140% of book value. I thought this would be the future — we'll just keep raising money for this vehicle. The problem was the reinsurance business took a sharp turn for the worse, and we had some good years at Third Point, but we were scrambling to offset the losses from the insurance company.

Dan Loeb

About three years ago I said, well, we had the right idea but the wrong insurance vehicle. We were doing P&C insurance. We really should have done plain-vanilla annuities. The problem is the annuity business can't invest in the hedge fund — it can only do credit. The good news is we'd had about five years where the insurance side stopped investing in my hedge fund and started investing in structured credit, corporate credit, and other things more appropriate for an insurance company. Since then we merged our reinsurance company into a closed-end fund we had in the UK, Third Point Offshore Investors. We reincorporated that business from Guernsey to Cayman and repurposed it from a closed-end investor in my hedge fund into an insurance company. That company can now do more reinsurance deals, issue primary annuities, and Third Point manages the money in private credit, structured credit, whole-loan mortgages, some direct lending in real estate, some investment-grade corporate debt. We also put the equity of that business in things like the junior tranches of structured financings, and we'll use it for growth equity investments.

Dan Loeb

I'd have to say our investment in FTX. It looked great. The company was growing fast, we could verify it all on the blockchain, we felt we had good company on the cap table with us. It just turned out it wasn't what we thought it was. It was painful, because one of the amazing things about our capitalist system is the ability of venture-backed companies to go out and raise capital for interesting ideas, and most people are good actors with good intentions — we've rarely had any mishap. That doesn't mean you don't do careful due diligence. Now our due diligence process definitely checks bank balances and does the most basic due diligence that probably would have turned stuff up on this. But if he hadn't ended up being a crook, or very sloppy, the venture investments he made would have made him like the best venture investor of this era — Cursor, Anthropic, Solana, everything he did. The guy had a great nose for value. That was probably the toughest mistake we made in the last two years.

Dan Loeb

We've made some great short investments in things being disrupted by AI, but where we've made mistakes — controversial ones — is thinking we knew better, that AI wasn't really going to affect this part of the info-services business, or that these guys had proprietary information. That's where we've made some mistakes. I still think there could be a shakeout, and there probably will be some phoenixes that rise from the ashes, but that's been the investment lesson of the last year or so.

Dan Loeb

First of all, we all just have to start using it. The only way to get good at this is to use it. We have people at different levels. We've brought on experts who are native computer scientists coming at this as expert AI people, working on specific projects and coaching the team, but we're also encouraging everyone to use AI and find as many applications as they can. We hire system integrators — we have one working with us as we're starting a new insurance company. I'm obsessive about continual improvement, both individually and organisationally, and Claude really enables you to be an individual self-improver. It makes you very autonomous. It'll give you back whatever you put into it — if you put a lot of time and energy and effort into it. So I'm encouraging everyone to do that. Collectively, we're sharing best practices. Some people are running agents overnight, using tons of tokens; others, more like me, are using it more for queries. But we're all very involved with it.

Dan Loeb

I think we're probably more optimistic — or you could say less pessimistic — that there's going to be some kind of apocalypse from AI. I'm still pretty optimistic that it will create opportunities and net jobs. Obviously it'll lose in some places and gain in others. The differentiator for us is that we can always default into credit investing. We haven't been in a scenario with a real credit cycle, but I'm very comfortable investing in incredibly stressed times, and we really haven't had any since 2020. Going back to COVID, the thing we got really right — we had a good year that year, but it wasn't because we piled into stocks, it's because we piled into IG credit when it was so cheap.

Dan Loeb

It's so different. I grew up in credit — I worked on a trading desk. You don't just electronically trade bonds; you have to have relationships with these firms. Part of the reason for expanding into the CLO business is that we had the high-yield market, a trillion-and-a-half-dollar market, pretty well wired. We were dabbling in the broadly syndicated loan market, another trillion and a half. And we have eyes on a $6 trillion structured credit market. These are not markets that lend themselves to tourism. When the opportunities come up, we're already there, with the relationships and the understanding of the companies.

Dan Loeb

The great analyst 20 years ago was someone who could build a model really fast and understand some complicated restructuring. I'll use myself as the example of that ancient dinosaur of an analyst. When I was at Jefferies, Drexel went bankrupt, and there was a thick disclosure statement — about three or four inches thick — on the bankruptcy of Drexel Burnham. This thing got passed around and nobody could crack the code. I was relatively new, and I knew I had to differentiate myself, so I spent a whole weekend studying it. Ultimately that was one of the best investments ever in the history of bankruptcies — the claims on Drexel — because people didn't understand the complexity of the different value pools and liquidations. The claims were overstated, the assets understated, but it was super complicated, and that was the kind of thing that differentiated the analysts of the '90s. Now, I think it's somebody like a Gavin Baker type, a junior Gavin Baker — somebody who understands a company or an industry and the nuances of a technology. And let's get away from technology for a minute. Casey's General Stores — why was this one of the best-performing stocks? It looked like a tech stock. It was because they weren't a convenience store chain, they were a pizza chain masquerading as convenience stores. You needed an analyst who went to Texas and ate pizza and saw that. That kind of analyst is what's different today.

Dan Loeb

The thing that worries me most is just not having the time to do the things I care about — spending time with my family, being able to go surfing, reading the books I want to read. I'm not really worried about the business. You have good process, you invest in things with good value. The thing that excites me is what's kept me going. God, what an awesome opportunity, to be able to incorporate everything you can possibly know about the world that's relevant — to study industries, technology, consumer behaviour, to look at the US economy, at politics, to travel to the Middle East, which I think is probably the most vibrant, interesting part of the world. Who would have thought, 20 years ago or even three years ago, that Bahrain, the Emirates, Saudi, Morocco, Azerbaijan would be better allies to the US than NATO?

Dan Loeb

And who would have thought their growth rates would way exceed theirs, or their embracing of technology? That's the stuff that keeps me going — being able to incorporate all these different things, and forming relationships with people doing interesting things: Jeremy O'Brien, who founded PsiQuantum, and talking about quantum computing; or Elad Ros, who started Next Silicon; or the CEOs of the companies we invest in. I got to know Mitch Rales from Danaher.

Dan Loeb

I thought about that, because I knew the question was coming, and I had a lot of different ways to answer it. But before I answer, I want to talk about the importance of kindness — and I know you know it's important, because you ask this question every time. It's important on many levels. If you elevate kindness as a characteristic in your hierarchy of things you want to be — honest, truthful, smart, clever, innovative — I think kindness is very important. It goes with forming deep relationships. Kindness enables you to be empathetic, which enables you to connect with people, to learn from them, to be better as a human being, and — I hate to sound crass — ultimately it will benefit your business. So on the kindness front: be kind to people not just those who will benefit you. Be kind to people when you have no idea how it will ever benefit you. Sometimes it will and sometimes it won't. Sometimes you just connect with someone who thinks you're a better person.

Dan Loeb

But anyway, I came down to my friend Carter. When I was, let's just say, in between jobs before I started at Jefferies, I had about a six- or nine-month period where I wasn't working, and he let me sleep on his couch. When I got my job at Jefferies, I suggested to him a bunch of distressed debt situations, and he trusted me with a few hundred thousand dollars of his money. It turned into a little over a million dollars, and he then rolled that into my fund. It really enabled me to get my business started. That was one of the kindest things. And I want to say one other thing on the kindness topic — Gavin actually said this, and I think he was quoting Palmer Luckey: the one thing money doesn't buy you is friends who believed in you when you had nothing.

Dan Loeb

All right. Thank you very much.