Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: Again, back to the news cycle. There's this thing of firms that manage lots of private credit strategies, SMA exposure, et cetera. Some of their stock prices are really hurting and we've talked about all the reasons ad nauseam for the mismatch, et cetera. What do you think happens in private credit land?
· Alan Waxman
[00:00:00] S1: I think and hope that this is going to be a recalibration. People are going to re-adopt more prudent underwriting. I think people in the industry will change behaviors. And by the way, in some cases, the market will change your behaviors because you may not be able to raise more capital. So the market mechanism I think will work. And then obviously, and this is a hopeful, I think it'll stabilize, and hopefully the best thing about the current moment is that this happened not in a deep recession. It happened when the economy is pretty relatively healthy. I mean, there's definitely risk out there to be worried about, but this would be a much different – if you think about redemptions on a lot of these wealth vehicles, if it were a distressed environment, the redemptions would be 2-3x what they are. So to me, this is a gift to the industry to recalibrate. And there's a lot of smart people in our industry, a lot of great investors. And I think the industry will recalibrate. And then if you think, stepping back from the American financial system, commercial banks, You could have a really powerful system supporting economic growth with commercial banks providing one pillar – safer, good guardrails – and private capital providing the risk capital. That's a pretty good system. And I think if we get that right, it's really going to set up America to be really optimized for economic growth. That's what I'm hopeful about.
· Patrick O'Shaughnessy, Alan Waxman
[00:00:00] S0: You alluded to AI and software being one of the early dominoes that got this whole discussion rolling, and people's redemptions and reactions and things. It seems like, if you think about creative destruction as a force driving the US experiment since its inception – talk about facing a tiger. We are facing a hardcore period of creative destruction. How do you think about that, given the open, wide mandate of Sixth Street, your ability to go put your capital and your customers' capital in so many different places? Just talk to me about the opportunity set today. Of course, I want to hear what you think about like AI and software, I can't help myself. This just feels like such a time to be alive, but also opportunity and danger. [00:00:00] S1: There's lots of opportunity. I live on the LLMs. I play with them. Actually, my wife makes fun of me because I'm constantly playing with my friend Claude or my friend Chat or my friend Gemini. [00:00:00] S0: Not your friend Grok?
· Patrick O'Shaughnessy, Alan Waxman
[00:00:00] S0: Not your friend Grok? [00:00:00] S1: I actually play with them all, because I like to ask them the same question to see how they answer it differently and just try to get a feel for it. But big believer on the productivity opportunity. There's a lot of good with it, but there's definitely risk on the transition. You mentioned software. That was one of the catalysts that got us into the current moment, but everyone's so focused on software. I think having lived in Silicon Valley – I know you spent a lot of time there – this is not just software. This is every industry. Because once one company in any industry figures out how to actually use it as a tool and really figures out how to use their agentic capabilities and drive higher margins, if you're one of the companies that's a slow adopter and you're not active, you're going to have some of the same problems that people perceive the overall software industry to have today. So it's not just software, it's across everything. But look, one of the best things about the American project is creative destruction, because it allows for prudent allocation of capital to the right places that are going to drive the right outcomes.
· Patrick O'Shaughnessy, Alan Waxman
[00:00:00] S0: If you think about the unfolding set of opportunities that it creates, one of the categories that you and I always talk about that I'm so interested in is one's own development. And the highly adaptable people seem like they're going to be set up for lots of success in this environment. How do you think about your team? And I know you have a team that's very long-tenured, that tends to be at Sixth Street for a career. How do you think about their development and new things that you can do as the leader, to make sure that they are all dynamic as things change really fast? I know you're playing with the LLMs all the time, but this is an important part of your job, your team. How are you thinking about it? [00:00:00] S1: When we hire someone, we're looking for a lot of things, but two of the things that we're looking for, are they an open architecture person? Can they play tennis – what we call playing tennis – balance different ideas, even when you disagree with someone? And the second thing is, are they a learner? Surprisingly, we track all the AI usage on the LLM models. Our usage across our entire firm is off the charts. One, because of the types of people we hire. But I just think in general, and stepping away from Sixth Street, it's that if you're not adaptive in this environment and you're not a learner – literally committed to learning every day and improving yourself every day, you have the risk of getting lost in what's happening and about to happen in a more accentuated way.
· Alan Waxman, Patrick O'Shaughnessy
[00:00:00] S1: When we hire someone, we're looking for a lot of things, but two of the things that we're looking for, are they an open architecture person? Can they play tennis – what we call playing tennis – balance different ideas, even when you disagree with someone? And the second thing is, are they a learner? Surprisingly, we track all the AI usage on the LLM models. Our usage across our entire firm is off the charts. One, because of the types of people we hire. But I just think in general, and stepping away from Sixth Street, it's that if you're not adaptive in this environment and you're not a learner – literally committed to learning every day and improving yourself every day, you have the risk of getting lost in what's happening and about to happen in a more accentuated way. [00:00:00] S0: I have an off-the-wall one for you. It's been deeply impactful on me. Can you explain this paper one-sheet system for how you get everything done and track what you do?