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:

• angeloakcapital.com

Companies mentioned in this episode:

• Angel Oak Capital
• Angel Oak Mortgage REIT
• SunTrust Bank
• Washington Mutual
• Fannie Mae
• Freddie Mac

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

This is your host, 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.

Srinivas Prabhu.

He goes by Srini.

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.

And he leads the overall investment strategy of the firm.

He also is co pardon.

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

Ticker is a O M r.

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

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

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

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.

So lots of really great resources.

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

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

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.

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

Thank you, Andres.

I appreciate it.

I really appreciate you having me on the podcast.

Yeah.

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

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

Lots of strategies, lots of products.

Tell us the backstory.

Thank you.

It was a different way to get here.

First part of my life.

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

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.

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

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

We're both alums.

Yep.

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.

I wanted to do it.

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.

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

And suntrust.

Yeah.

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.

Yeah.

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.

Right?

Yep.

Everything.

Everything we do.

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

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.

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

Center of the crisis out in Seattle.

Yeah.

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

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

But you became bearish.

And I want to stop there.

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

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

Institutions.

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.

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.

I would be remiss if I.

If I didn't bring this up.

And you can find this out there on Google.

You know your firm, Angelo Capital.

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

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

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

When, again, this is the author.

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.

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.

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

Yeah.

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

Okay.

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

Right.

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

Yeah.

You were in a lifecycle.

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

Right.

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.

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

Right.

Yeah.

And there were other forces.

Right.

Comment.

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

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

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

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

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

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

Yeah, yeah.

It was a moving train.

Yeah, it was a fast moving train.

Yeah, it was, it was.

And we'll keep it macro.

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.

That's what it was.

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

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

And these assets then provided through the entire financial system.

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

So that's a positive.

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

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

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.

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

It was the addition and the subtractions that happened afterwards.

Right, right.

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

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

I mean, a lot of these things.

But effectively, yes.

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.

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

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

You talked about coming from Mumbai to play tennis.

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

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

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.

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

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

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

Yeah.

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.

Yeah.

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

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

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

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

No, I appreciate it.

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

As you know, it's hard.

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.

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

You had like couple of.

But you were really opening up.

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

And you opened it up and he started randomly.

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

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

Right?

Looks like.

Yeah.

So that was the first shock I had.

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

So it was a culture shock.

My first breakfast was eggs and grits.

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

But I would tell you the community was phenomenal.

I mean, I never felt uncomfortable.

My experience, I was on a tennis team.

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

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

So, you know, that was great.

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

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.

There's no doubt.

You create your networks, you create your.

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.

Right.

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

That's right.

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

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

You just learn to compete with a very positive attitude.

Yeah.

And you have to think about long term business.

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

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.

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

So small schools, regional schools.

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.

Yeah, well, you have to stay late.

You got to know what you.

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

And you gotta.

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.

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.

And then you're kind of off.

And it's so easy for us today.

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

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

You want to build.

You have built a company.

Yeah.

You want to have relationships with borrowers.

You want to have relationships with investors.

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

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

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

Then you said you moved out west to Seattle.

You're at Washington Mutual.

You're now more specialized.

You're running a $25 billion portfolio.

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

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

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.

So we knew all that.

We knew where the paper was.

You know, I had never started a business.

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

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.

Right?

Day to day is a grind.

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

I wanted to come back to Atlanta.

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.

We were clearly wrong in our thought process.

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.

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

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.

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

The only way you can do it is institutions.

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

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

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

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

And she came back to Atlanta.

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

The world was changing by the minute at that point.

But then it gets back to us, right?

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

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

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

We would wave to people.

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

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

So that's how Angelo got started.

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

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

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?

It's a pivotal point for us.

We probably managed about $200 billion.

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

Exactly.

They are.

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

I'm going to give him a shout out.

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

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

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

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

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

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

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

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.

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.

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

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

We talked about this offline.

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

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

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

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.

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

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

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

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.

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

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.

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.

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.

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.

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

But I kick myself still to this day.

I don't have regrets.

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

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

Would have, should have, could have.

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

We are fiduciaries.

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

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

Don't just pass on it outright.

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

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

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

So we had probably three or four funds, maybe.

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

2011 was a.

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

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

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

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.

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

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

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

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.

So we had a choice to make.

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

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

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

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

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

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

Right.

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

You came to see us at that time.

Yeah.

50 old Ivy house.

It's incredible.

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

Right?

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.

We want to build a long term business.

How do you do that?

Well, you got to hire good people.

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

So we started putting team.

Three things we did.

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

So we put a team together.

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

These were toxic mortgages.

Nobody.

How do we deliver them to the retail side?

Who's going to trust us?

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.

Can you deliver that in a mutual fund structure?

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

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

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

It cannot be a hundred billion dollar fund.

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

And that Ri gave us money.

This is a two story and another advisor from California.

I don't want to mention the name.

They cold called us.

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

We have been looking to invest in non agencies.

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.

Sure, we like what you're doing.

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

We've got something here, folks.

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

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

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.

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

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

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

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

We didn't scope creep.

We didn't go crazy and other things.

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

So we committed to what we wanted to do.

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

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

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

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

We have a CLO portfolio manager.

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

But we look at it.

Yeah, you do.

Yep.

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

Non QM.

Explain what that means real quick.

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

Help people understand that.

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

Why did we have this big bubble?

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

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

So they came up with a few things.

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.

It's a checkbox.

It's called delegated underwriting.

You go in and it's a government mortgage.

Banks can do it and you're qualified now.

That's right.

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

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.

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

How do those agencies fit into the QM market?

So they are the QM market, right?

So Fenime and Freddie MEc are the qualified mortgage.

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

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

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

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.

That's right.

And it's a balance sheet life model.

Right.

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

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

Safer.

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.

Right.

Non Qn.

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

Now you have to underwrite it.

You have to keep all the paperwork.

And you've got to reserve more capital.

You've got to reserve more capital.

It's called risk retention.

Right.

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

Right.

So basically, effectively, what that created.

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

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

I'm a non qualified borrower.

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

So I have to be fully underwritten.

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

That was a basic.

And that creates more, just friction.

Right.

For that lender.

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

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

You know, he's got a degree.

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

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

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

It's a massive market, trillions of dollars.

Right?

People want to own a home.

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

So it's a massive market.

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

Yeah.

So they got to start making some board level decisions.

Do we want to be in this space or not?

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

You're distributing it.

What are you putting in the fund at that time?

Yeah.

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.

In our fund, we really were introducing structured credit.

Mortgage.

Got it.

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

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.

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

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

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.

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.

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.

What was this?

Right.

You, you were.

This was the first time.

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

Right.

So it was right to be skeptical.

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.

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.

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

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

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

Yeah, yeah.

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

What is it?

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

And my numbers might be low.

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

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

8800 people today in the mortgage business.

And why, why start the mortgage business?

That's right.

Yeah.

They didn't want to start.

Right.

So they basically just exited the sector.

So created a vacuum.

And so who starts it?

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

So we stepped into this because of one important thing.

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

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

Right.

Why did we need to start a mortgage company?

Because nobody was originating these loans.

So where do I buy them from?

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

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

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

So how do we start that?

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.

And how do you do that?

You start a mortgage company.

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.

Gotta make that call.

Yeah.

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

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.

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.

Those are the three things we were working on.

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.

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

And we did.

Yeah.

It was a private, was it a private securitization?

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

No private rating.

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?

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

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

Right.

Guys knew about this asset class.

Yeah.

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

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

So there was a full blown due diligence.

The world has changed dramatically.

They're just buying bonds now.

But did you get a total different reception?

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

We know exactly what's going on.

We're servicing it.

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

I mean, what was the reception?

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

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

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

It's unrated.

Why would I take a risk as a portfolio manager?

But they came to us, they supported our program.

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

Yeah.

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

That's amazing.

And a proof of concept.

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.

We manage your credit.

You're managing your credit.

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

We're managing credit for you, number one.

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

That was the basic thesis, right?

It was not.

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

No, no, no, we underwrite credit.

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

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

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

But we had two companies, retail and wholesale.

At the peak we had 800 people.

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

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

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

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

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

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.

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

Maybe my spouse works freelancers, maybe not.

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

I want to go get my first real estate property.

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

But who's that individual calling?

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.

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

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.

And basically you're working for yourself.

Real estate agents, real estate brokers.

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

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?

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

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.

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

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

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

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

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.

Right.

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.

And we have fund capital.

So it's not like every loan we make.

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

Right?

No, no, no.

Yeah.

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

We said, we do it.

We'll underwrite it.

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

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

What documents do we need?

What documents do we not need, right.

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

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

And we got more efficient.

We started using more technology.

But in the beginning, that was a.

It was like you said, it's customer.

It's.

It's education of the customer.

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

So now we have that to go to.

But.

Right.

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

Right.

So we still have guys that we have.

You know, there's a lot more competitors.

It's a competitive market.

It's a.

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

But people come for service.

Right?

That's where people go for price.

There are places people come for service.

We are the service on that.

And we need to.

Yeah, that's huge.

And I've been private credit.

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.

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

Just give me some certainty.

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

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

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

It's just a non starter.

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

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

You know, all that, it's.

It's huge.

Yeah, you all are.

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.

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

You've got an ETF.

It just surpassed a billion dollars.

Yeah.

Did the experience.

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

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

We need to go start a mortgage company.

What was the thinking of starting the ETF business?

I'm curious.

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.

That is not true.

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.

It's more sophisticated than people think.

It's an insult to call them not.

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

We have to provide them with solutions.

And used to be that.

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

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

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

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.

That's absolutely right.

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.

Right?

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.

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

Exactly.

How do I bring a solution?

And you can't.

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

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

Like, that's done.

Yeah, it works.

It works for a short period of time.

It works for a trade or two.

But that does not create a relationship.

So the ETF business is interesting.

You'll see it.

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

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

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

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

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.

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

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

Again, not one fund, a solution.

Let me decide.

Give me different shades of risk and return.

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.

And they appreciate it.

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

We're not here.

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

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

And you decide how it affects you.

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.

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

I would tell you the transition.

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

Yeah, definitely.

And ETF's are going to be.

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

You could have said, why ETF?

It's too much cost structure.

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

We had Ward, who knew a lot about it.

And he's put a team together.

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

We are managing credit for individuals.

Right.

That's the basic thing.

Yeah, I love it.

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

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

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.

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

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

It's your capital.

Yeah.

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.

Yeah.

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

We got to make an investment in ETF business.

We got to bring in an outside expert.

We got to give that person time.

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.

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

They're good.

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

Those are not really more.

I don't call them real asset managers.

They're more lifestyle kind of family offices.

Yeah.

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.

Those dollars trickle in.

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.

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

Business is not a hundred million dollar ticket they want.

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

And it takes time.

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?

What if it stays at $10 million?

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

Yeah.

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

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

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

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.

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

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

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.

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

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.

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

It's not a one way.

Oh, yeah, advisors have a lot of.

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

Right.

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

What are you doing for your clients?

Where can we be value at?

Not just short term, but long term.

And that's important.

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

That's how it works.

It doesn't work that way.

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

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

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.

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

This is from one of the articles.

This is, I think from a few weeks ago.

So it's very current.

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

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

So these would be bonds, double AAAA rated bonds.

They're trading pretty tighten.

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

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

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.

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

I said a lot.

There's a lot of terminology there.

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

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.

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

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

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.

Then historically, people went to corporate bonds.

That was where people invested.

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

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

So double b, single a.

And that was.

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

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

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

That's right.

Yeah.

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.

That's just now we know that.

That's just how it works.

You go to munis.

You go to high yield munis.

But really that's what sectors are happening.

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

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

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

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

So, no, the data is on your website.

I mean it's.

It's a phenomenal story.

We can't talk about it enough.

You gotta dig in.

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

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.

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

Okay?

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

You bought a three year bond, okay?

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

You know where up and down is.

Then you bought a pool of mortgage bonds.

Right.

People move people in the job.

Right.

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

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.

They extend on it, the maturity gets wider.

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

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

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

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

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

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

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

Yep.

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

Right.

It doesn't mean corporates is bad credit.

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

That's what we people.

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

That's it.

The relative value hedge fund.

Forget all that.

You just got a masterclass.

Srini explained it.

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

Srini.

Second lien mortgage market.

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

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

I think Covid hits.

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

Yeah.

Refinance.

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.

We just don't even think about it.

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

We're blessed.

We're very fortunate.

I know that.

And credit to my wife, I mean, she.

She holds it down.

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

They're not.

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

And yet people always need capital.

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

There's always an addition you want to make.

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

There's always college tuition.

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

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.

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

Yeah, we know.

It's funny.

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.

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

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

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

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.

No.

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

I can do the math.

Your property is appreciated pretty decently nicely.

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

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.

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

And go make sure.

Yeah, yeah.

Talk to your mother.

Yeah, yeah.

Oh, yeah.

So you're doing.

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

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

Right?

It's the same.

That's right.

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

20 trillion, sorry, trillion.

Yeah, yeah.

20 trillion equity, but what we call tappable equity.

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

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.

Right.

Got it.

Let's call it two to $3 trillion.

And not all of that is going to be tap.

But that's the tactical market.

But this is a big market.

Yeah.

This is hundreds of billions of eventual annual issuance.

Oh, yeah.

And that market is just beginning.

There's few players in that.

Again, private investors.

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

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

But again, this is good, healthy borrowers.

You're still doing underwriting on these borrowers.

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.

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

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

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.

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

This time is the housing.

That'S right.

So we think this is a tremendously addressable market.

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

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

It's a relative value in the household.

Right.

What do I do?

Should I dip into my 401k?

Do I sell my stock portfolio?

Do I borrow on my house?

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

And that's a great segue.

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

We're not selling anything here.

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?

And you just described one.

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.

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

We know the cost of parents moving into assisted living.

Those are out there.

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

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

Why would I do that?

And yet there's an opportunity.

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.

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

Yeah, I agree.

You know, very compelling.

Yeah, very interesting.

Yeah.

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.

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

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

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

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

So more of a macro question.

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.

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.

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

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

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

Nothing.

Nothing.

Yeah, not working.

Fixed income.

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

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

So you cannot say everything.

Absolutely.

Our amazing work and smartness, timing was great.

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

People could just buy credit because Fed was a backstop.

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

So that's the business side of it.

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

None of us knows a soft landing.

We don't know that.

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

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

But maybe we have fixed income.

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

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

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.

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

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

That's what we paid to do.

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

I think the Fed is.

We can say they're late or not.

I'm not going to debate that.

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.

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.

You just can't do that.

No.

Yeah, right.

And you cannot say we borrowers should default.

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

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

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

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

So I think the Fed understands that.

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

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.

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

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

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

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?

And it has to be relative.

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

But we have to prove ourselves.

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

I mean, that's just the environment.

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.

So why would you, you bought the worst asset?

Because Fed used to backstop.

And I think that environment is gone.

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.

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

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

That's not what we're entering.

But weaknesses can exaggerate very quickly or exasperate very quickly.

Yeah.

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

That's helpful.

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.

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

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

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?

I'm not going to do that.

I don't like to do that.

Nothing against.

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

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.

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

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

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.

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

But what would you say to those folks?

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

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.

So we do a pretty decent sized internship program.

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.

That's not how it works.

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.

It's all about who you are.

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

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

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

I said, no, I like finance.

I want it to be, I enjoy finance.

And so you have to be patient.

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

It's never the best.

The worst thing you can get is a no.

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.

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

Yeah.

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

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.

I think.

I think they have Bloomberg for university students now.

Yeah, I.

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.

And then you just grind.

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

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

So you might.

Yeah, yeah.

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.

That's not how it works anymore.

No, you're at it.

That's, that's amazing advice.

That's great.

I appreciate you.

I have one extra credit question.

You're a tennis player.

The US Open just got underway.

Not without scandal or number one ranked players.

Scandal about did he use the enhancement drugs or not.

I want to ask you more.

Are you going to go to the US open?

Have you been and do you still play the game?

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

All my boys play, so I play with them.

I cannot keep up with them anymore.

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

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

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

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

I'm not going this year.

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

I'm excited.

It's going to be a good comment.

Yeah.

So we'll see.

That's cool.

That's great.

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

And I really do appreciate the extra time.

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.

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

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

And really, I appreciate the opportunity you gave me.

A.

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

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

Dot angeloak Capital.com.

and with that, we'll sign off.

Srini, thank you so much.

For joining me today on Atl alt.

Thank you so much.

I appreciate it.

All the best.