#18 – Damsel in Distressed

Dominique Mielle had an illustrious career as a distressed debt hedge fund manager at Canyon Advisors in LA.

SUMMARY

Dominique Mielle had an illustrious career as a distressed debt hedge fund manager, including building a $5bn CLO business from scratch at Canyon Advisors. She retired from hedge funds, wrote a book, amusingly titled Damsel in Distressed, about her story to inspire women to follow her lead. In this interview, she talks about why there are not more women in hedge funds and in investing more broadly; about the complexity of the distressed debt business; and about being a woman in a man’s world.

GETTING INTO INVESTING

Dominique studied in Paris and took a job in New York. Years later, she attended business school and took a course in investing, discovered her passion and decided that was what she wanted to do. That course was given by Bill Sharpe, famous for the Sharpe Ratio. That led to her taking a job with Canyon Partners, which lost half its assets in the Asian crisis as she joined. She turned down Jeff Bezos’ offer to be his 15th employee to take that job. But Canyon went on to grow to a $25bn business and Dominique carved out a unique role in distressed debt.

WOMEN IN FINANCE

In her book, Damsel in Distressed, Dominique writes “Investing is highly creative and requires imagination, ingenuity and guts” which I think is a great summary. She goes on to point out that women have all these qualities in equal quantity to men. Many studies have shown that diverse teams make better decisions, yet Mielle feels that women are under-represented as hedge fund founders tend to be male and employ members of their own tribe – people that look like them and think like them. As a consequence, young women don’t see successful women in hedge funds, which makes it difficult to envision this as a possible career path.

WOMEN HAVE TO BE NICE

She doesn’t tend to yell but can act quite mean. …”..these moments of impatience are rare and stem from legitimate reasons, such as dealing with incompetence or absurdity, having to repeat oneself, being told what one already knows, or waiting” is how she describes herself in the book. At work, if she got impatient or angry, she often got a reaction “don’t get emotional”, to which she would respond, “I am not emotional, I am angry, feel the difference?” Mielle believes women walk a fine line between being assertive and being nice – not being nice as a female professional, she believes is what will really damage your career.

MARKETING IS UNDER-RATED IN HEDGE FUNDS

 Mielle was paid more than the Head of Marketing, the only other senior woman at Canyon. She thinks this was wrong. Large hedge funds have not beaten the market in the last decade and Mielle thinks that an important reason that investors still allocate to these large funds is the marketing. She thinks that the hedge fund business is like any mature industry – what makes the difference is the packaging or the marketing. You don’t buy Gucci sunglasses because you can see better with them, she quips. And she thinks it’s the same for large funds like her former employer where it’s the marketing that makes the difference, and marketing people should get paid more.

Steve’s note: I disagreed with much of what Dominique asserted in this episode but the purpose of the podcast is to learn, and you are much more likely to learn from listening to a different viewpoint. Maybe there are marketing geniuses in large funds who are persuading people to allocate their money, but I have never met one, and even if I did, I am not sure I would be persuaded that they merited similar pay to the front office, if performance were good.

DISTRESSED VS EQUITY INVESTING AND ITS FUTURE

Valuation is a similar skill but distressed is more complex. Mielle believes that we could be on the cusp of a really interesting window of opportunity in distressed – typically distressed bonds trade at the risk free rate plus 1000 bps. So if treasuries get to a 5% yield, distressed could offer 15% which is really attractive. Of course the opportunity will be there for new investors and existing distressed investors will suffer. She also makes the point that many young investors in their 30s have no experience of investing when treasuries yield 4-5% so they are facing a completely new scenario.

LA MUSEUMS

Steve mentioned that the Getty Museum was the only museum he likes in LA. That’s not strictly true. He visited the Petersen Museum this summer and it’s one of the best car collections in the world. Dominique mentioned the Getty Museum and The Norton Simon Museum. (Image courtesy Getty Museum.)

ABOUT DOMINIQUE

Dominique Mielle is a former Partner and Senior Portfolio Manager at Canyon Capital and the author of “Damsel in Distressed.” She is a director of mortgage REIT ReadyCap, Studio City International, a Macau casino, speciality insurance player Tiptree, wireless operator Digicel Group and Osiris Acquisition Corp. She was also a director of PG&E and chaired the audit committee during its bankruptcy process.

dominique mielle 2

Source: news.artnet.com…

BOOK RECOMMENDATION

Dominque has written a book about her career in distressed debt, appropriately titled Damsel in Distressed.

She finds most finance books quite dry, but enjoyed Liar’s Poker.

Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street is the book which apparently inspired the series Billions and tells the story of the investigation into Steve Cohen and SAC.

HOW STEVE KNOWS THE GUESTS

Steve was concerned about the low percentage of women listeners to the podcast (and a similarly low percentage of women taking his online investing classes). He asked why on social media and Ben Yeoh suggested that he should get more women as guests, having only had Lucy MacDonald in his initial series of 5 shows. Steve went back to Twitter for suggestions, Dominique’s name came up and she kindly agreed to come on the show. Steve continues to want to push for more women in investing and would be delighted to hear other suggestions for women guests.

 

Chapters

00:02 – Demystifying Investing: Understanding Success

07:25 – Women in Finance: Overcoming Preconceptions

15:07 – Empowering Women in Hedge Funds

21:19 – The Thrilling Game of Distressed Investing

31:42 – The Power of Preparation in Presentations

38:03 – Bankruptcy and Restructuring in Crisis

47:11 – Opportunities in Distressed Investing

53:28 – Book Recommendation for Young Investors

 

Transcript

STEPHEN CLAPHAM: Hi, welcome to the Behind the Balance Sheet podcast where we meet leading investors and commentators and educate ourselves about the world of investing and the world. Our mission is to remove some of the mystique around investing and improve our understanding of what makes a successful investment or indeed an unsuccessful one.

STEPHEN CLAPHAM: Our goal is to inform, educate and entertain.

DISCLAIMER: We hope you enjoy this and every episode behind the balance sheet and affiliates and podcast guests may own shares or have an economic interest in securities discussed in this podcast which is aired for your education and entertainment. Only nothing in this podcast should be construed as investment advice or relied upon for investment decisions, always do your own research.

STEPHEN CLAPHAM: Dominique Mielle was an important figure in the world of distressed debt hedge funds and has been one of the most successful women in the Hedge Fund space having built a five billion dollar line of business from scratch.

STEPHEN CLAPHAM: In this episode, we discuss why they’re not more women in investing. Why she thinks preparing a script to present is compulsory as she puts it like make up for a French woman. Why she believes professional women walk a fine line between being assertive and being nice.

STEPHEN CLAPHAM: Why we could be on the cusp of a really interesting window of opportunity in distress and why young investors are facing a completely new scenario. Miel is smart French, assertive, opinionated and funny and I hope this podcast inspires some women to think about a career in investing and I hope it gets us some more woman listeners because my audience is too male oriented.

STEPHEN CLAPHAM: So Dominique, welcome to the podcast. Thank you for coming on. Tell me you were an associate at Lehman. You turned down Jeff Bezos offer to be his 15th employee and you ended up at Canyon Advisors, a young Hedge Fund which lost half its assets in the Asian crisis. As you joined, you went on to become a partner in a firm which grew to $25 billion. Did you always want to be an investor?

DOMINIQUE MIELLE: Thank you for having me first, Steve. And the answer is no, I did not. And that’s something that I always start with because I think it’s an unusual start or something that practitioners seldom say you have this impression that investors found their calling when there were six or seven started investing their high school tuition or, or traded lemon and lemonade.

DOMINIQUE MIELLE: It was definitely not my case.

DOMINIQUE MIELLE: I was born and raised in Paris and after my studies, I wanted to discover the world, I got a job offer in Tahiti for a sort of menial job and one in banking in New York. And truthfully I didn’t care if I was gonna do basket weaving or finance.

DOMINIQUE MIELLE: I just wanted to discover a New City and New York seemed like lots of fun and that’s where I went. And it’s not until years later when I went to business school and I took a class in investing, taught by Bill Sharp. That I really thought this is what I wanna do. I wanna be on the by side, I want to be investing.

DOMINIQUE MIELLE: And then I sought a job with Canyon Capital.

STEPHEN CLAPHAM: So it was a, it was a late vocation and Bill Sharp is that the man that invented the sharpe ratio.

DOMINIQUE MIELLE: He is indeed, he was at the time teaching a phd slash M B A class which I found completely fascinating.

DOMINIQUE MIELLE: And it was helped by the fact that I had an enormous crush on the man, even though he was quite a few years, my elder and happily married. But so I was I was all struck by him. That helped sort of form, my idea about what career I wanted to have. Yes.

STEPHEN CLAPHAM: And what was it? That was so fascinating. I mean, why, why did you like it so much?

DOMINIQUE MIELLE: You know, this was really my discovery of the two schools of thoughts.

DOMINIQUE MIELLE: One is the School Of Chicago and the modern portfolio theory versus the school of Graham and Dodd. The latter is about stock picking. It’s about trying to find an intrinsic value in stocks different. And apart from the trading value and obviously buying stocks or assets below their Rensing value and trying to make money by those two values converging that that was one school of thought.

DOMINIQUE MIELLE: And the modern portfolio theory says something quite different. It says that basically there is no such a thing as true value trading value is what the value is. It is that value where you can transact. So what investing is all about is forming a portfolio of assets that give you a return that’s commanded with the risk and that’s the sharp ratio.

DOMINIQUE MIELLE: And so the idea was much more about mathematics and constructing a bunch of assets that would basically match that objective of, of optimizing returns. And I thought that was very, very interesting. I thought that matched my idea much better. And that’s what sharp Bill Sharp was teaching.

STEPHEN CLAPHAM: Interesting. I I mean, I, you know, I’ve gotten online training school. Would I have to teach some of this, some of the theory and I always struggle because, you know, in practice, the theory doesn’t work, right. I mean, it’s quite a bizarre thing. I loved your book and, the, the book In Distress, the Story of your life and your career.

STEPHEN CLAPHAM: And you talk a lot about women in finance and I just want to read a comment to you. You said invest is highly creative and requires imagination, ingenuity and guts, which I think is a really good, really good line. I think very true, all qualities that women have an equal quantity with men.

STEPHEN CLAPHAM: And then you go on to say the hurdle for many women is the cultural preconception. That skills in maths and related fields are associated with masculinity. This leads women to under assess their abilities to perform at the highest level in finance and consequently opt out of it, men overrate their competence and jump straight in.

STEPHEN CLAPHAM: I don’t agree with you because hedge funds have a single, relentless focus on making money. Why would they discriminate?

DOMINIQUE MIELLE: That’s, you know, that’s the conundrum if and by the way, the quote you just read, this is not me making up, you know, sort of assertions. This is a study that I’m quoting where it’s, it’s really quantified that men tend to overrate their skills and women tend to underrate them.

DOMINIQUE MIELLE: Hedge funds. Objective is to maximize return. It is well documented by academics and research that teams that are diverse, make better decisions. So one would logically conclude that you’re gonna make better investments if you have a diverse team and gender is one diversity, but not the only one. Certainly.

DOMINIQUE MIELLE: If you had minorities in the in the team, it would at least that’s what the theory says. It would work much better than if you had 10 white men coming out of Harvard Business School. And I think that research that those ideas have not been internalized enough by hedge funds who are still run and managed by men and for better, for worse, they hire people who look like them and speak like them.

DOMINIQUE MIELLE: And it’s, it’s a very natural human inclination to seek people who are your tribe, right? So I think what, what breaks that are a couple of things, one is a, a tremendous push by limited partners, by investors demanding diversity.

DOMINIQUE MIELLE: And I think it really started with David Swensen at Yale specifically saying you, GPS will be rated and graded on diversity, not only of the firm, but specifically of the investment team and also women seeing more of their peers making it in the Hedge Fund business.

DOMINIQUE MIELLE: And that’s why I wrote the book because if you don’t see it, you don’t want to be it. You can’t be it. If you don’t have any women speaking and saying this is a great career, this is a career you can have where you can make a lot of money. That’s helpful.

DOMINIQUE MIELLE: Women usually don’t really have that as a goal or don’t tend to say it if you don’t see those women who have had a thrilling and successful and really excellent career, it’s really difficult for young women to think. That’s, that’s a path for me. So I think, you know, these are the two, at least critical factors that are, it’s changing for sure. It’s been changing.

STEPHEN CLAPHAM: I think it is other point you made in the book that you said your bonus was higher than the head of marketing, who was the only other woman partner. And you said heads of marketing are often women. You think they’re underpaid? I mean, surely it’s right that though they should get less than the people in the front office. I mean, it’s not marketing is much easier than, I don’t think so.

DOMINIQUE MIELLE: And this is really a revolution to me in the Hedge Fund business. If you think of the large, very large hedge funds, they haven’t beat the market in a decade, not systematically. I’m not saying that one of them hasn’t beat the market one year or two years.

DOMINIQUE MIELLE: But I’m saying that as an asset class hedge funds have underperformed the market and that’s why investors are supposed to put their money in a Hedge Fund because they beat the market systematically, but they’re not doing it.

DOMINIQUE MIELLE: So why are they still putting their money in it because of the marketing because it’s a good story because they’re serious investors because it, they have a good back office because they’re one stop shopping. They offer tons of products.

DOMINIQUE MIELLE: In other words, in a mature industry, what makes the difference is not the performance. It’s the story. It’s the branding. It’s it’s the packaging and hedge funds are no different. But where is the value? Now, The value is not in the front office. The, the value is in the marketing.

STEPHEN CLAPHAM: It’s an interesting concept. I’m not, it’s not one I’m familiar with.

DOMINIQUE MIELLE: It’s not, it’s not. But I think, look, why are you buying a Gucci pair of glasses, sunglasses? It’s not because they’re better or you’re gonna see better. It’s because you like the brand. Why are people putting money in those mammoth, very large hedge funds including my ex, employer?

DOMINIQUE MIELLE: It’s not because they are great investors who are going to beat the market because they haven’t. It’s because no one’s gonna fire you if you invest with those big hedge funds because they’re serious because they have a reputation because they have a brand and that’s not the, the front office.

STEPHEN CLAPHAM: Ok. Well, that sounds good. Then I’m gonna go for a job as market. Not because, you know, having been running my own business for the last three years, I’ve become more adept. I’ve still got a lot to learn in the marketing front but I, I’m, I’m better at it.

DOMINIQUE MIELLE: I have, I look, it’s a controversial idea and one for a debate I’m not proposing that it’s the end all be all of, of, you know, the state of affair.

STEPHEN CLAPHAM: But it’s, that’s my belief, at least, I mean, I, I don’t know that I agree with you to the extent that, you know, the big firms that I know, the founders of the firms or the principal of the firms have been very involved in shaping that marketing image. And so it’s, you know, the the head of marketing is executing a vision, somebody else’s vision.

STEPHEN CLAPHAM: And you know, I I get what you’re saying, if you’re the brains behind the vision and the brains behind the brand, that’s a real skill. I’ve not come across any heads of marketing that are at that level. With the exception of my neighbor Tim, who may be listening to this Tim, of course, you’re doing a brilliant job.

STEPHEN CLAPHAM: But I mean, I think that this is changing, you know, a Bloomberg story. I was reading listed nine new starts by women, two of them $1 billion startups by Tiger Grand. So people Viking and Lone Pine. So I mean, is doing the problem of underrepresentation by women. Do you think it could be turning?

DOMINIQUE MIELLE: I think improving, I think it’s turning and improving for sure.

DOMINIQUE MIELLE: And it is important that there’s a number of new female led funds with scale, right? Because of a few things, first of all, as you know, if you don’t have scale, your surviving likelihood is, is low and one billion is really kind of a marker.

DOMINIQUE MIELLE: There’s nothing magical about that number, but it it is a marker where you can have a solid back office, a solid legal department of a solid marketing, right? So it it really helps to launch with scale rather than struggle for years to attract capital, to get, to get to that size nine is better than zero.

DOMINIQUE MIELLE: Of course, nine is, is still a very difficult number because if one of them or two of them fail and the failure rate in hedge funds is, is very, very high, then you have, the issue of, well, you know, two very visible women hedge funds, you know, have failed and that’s a high rate and I think there’ll be a lot of, there’s a lot of pressure on those nine or 10 women, whatever the number may be to succeed.

DOMINIQUE MIELLE: And we’re in a tough market. And the last thing I’d say is it’s really important, as you said, quite a few of these women are sponsored by their former employer.

DOMINIQUE MIELLE: And this is a, a sort of tradition, historical process that we’ve seen a lot with men, but only with men. Tiger has spun off dozens of Tiger Cubs, right? But they’ve always been men. It’s the first time that we are seeing seeding of female funds by very large funds. And that’s that’s a really great start and a great change.

STEPHEN CLAPHAM: I should know this being a, a former partner of a Tiger on myself. But I can’t think of any woman in the front office at Tiger. I think Julian Robson mainly employed men. And I, I mean, I couldn’t be sure of this but I know of all, all the people that I’ve met, they were, they were all men.

DOMINIQUE MIELLE: So like, right, in fact, when I think about my 20 years working as an investor in a Hedge Fund, I can only think of one woman who was in distress, at least who was a partner and who had the support of her former employer.

DOMINIQUE MIELLE: That’s Mary Moore, who was a very early analyst at Fairlon Capital, which at the time was, was led by its founder, Tom Steyer and he had the vision to help her. I think, I believe he ceded her at least invested in her and she went on to be a great, a great investor.

STEPHEN CLAPHAM: Well, I, you know, I do courses for institutional investors, like do a forensic academy course, helping people improve their skills. My last three courses I had one of them had one woman in six other.

STEPHEN CLAPHAM: The next one had two women in 10 and a couple of weeks ago, I was in, in Paris where you are now and there were five women out of six students, which has been the record so far. I don’t know if that’s a French thing. But do you think there is a difference in the representation of women in different countries? Would you see more female or woman investors in France?

DOMINIQUE MIELLE: For example, I don’t know, I don’t know the French market at all having never worked in France really.

DOMINIQUE MIELLE: But I’d say Bravo, that’s a wonderful trend. And going back to something you, you mentioned, how do we define the skills needed for investors? If you start with, you really need to like numbers. You’ve got to be very good at math. You’ve got to be a ruthless dealmaker. Guess what? You’re not gonna have five women in 10 students, right? But if you start with, it’s a very creative job.

DOMINIQUE MIELLE: It takes ingenuity, it takes imagination. You have to be a good listener. I think you have a very good shot at having five or more women recognizing themselves and their competences in that description. So if we really change the concept, the idea, the archetype of an investor, I think it really can, it can help move the attraction of the job.

STEPHEN CLAPHAM: Yeah. No, I mean, I think it is a very creative job and I don’t think you need to be that good at numbers.

DOMINIQUE MIELLE: I mean, you need to obviously be able to add up, but exactly you need to add up, but a lot of jobs, you need to be able to add up and have some sense of numbers. Yes. Do if you hate math and numbers? Do you want to be in finance and investing? Probably not. But do you need to be a rocket scientist to enter the, the field of investing? I don’t think so. No, absolutely not.

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STEPHEN CLAPHAM: Now and in the book, you said you talked about your own character, you said these moments of impatience are rare and stemmed from legitimate reasons such as dealing with incompetence or absurdity, having to repeat oneself being told what one already knows or waiting. So that seems like a lot of rather terrifying set of attributes that you, I don’t want to keep you waiting.

STEPHEN CLAPHAM: One of my bosses smashed a phone through his Bloomberg screen when he worked for one of the big bracket banks. He did this more than once. Do you think women are held to different standards?

DOMINIQUE MIELLE: I think I was held to a different standard and most women I’ve talked to, believe so as well. I won’t make the generalization that all women are held to different standards because that would open me up for a lot of, a lot of comments. But yes, so to start with, am I impatient? And do I, if you ask my kids, do I have a bad temper?

DOMINIQUE MIELLE: And do I tend to go nuclear as they say? Yes, I do. Did I ever smash a phone or yell at a person? No, I don’t believe in, I certainly don’t believe in physical violence. That seems to me just about the worst behavior you could have in general, but particularly at a, in a working environment. And, I don’t tend to yell either, but I, I can act very mean.

DOMINIQUE MIELLE: And do our women sort of seen in a different light? Yes. For example, I, I remember more than once if I got in such a state of impatience and if I was angry and expressed myself in, in such terms, you know, I often got the reaction, don’t get emotional and I said I’m not emotional, I’m angry. Can you feel the difference?

DOMINIQUE MIELLE: And so, you know, there’s, there’s a very good research about that. Where, I think it’s a Harvard study that looks at how women are perceived and they walk a fine line, needing to be assertive and, aggressive and having an opinion.

DOMINIQUE MIELLE: While at the same time being nice, not being nice for a female professional is, is sort of the, the, the, the element that is gonna, is gonna kill you at work. You must be nice. It’s tough. It’s very tough to be nice and firm, you know, and warm and aggressive. But that’s, that’s a line that a lot of women have told me. They, they try to walk.

STEPHEN CLAPHAM: Yeah. Well, of course, it’s always a very high pressure environment. Now you say you started work at 6 30 AM. You were based in the West Coast. Is that because you were based in the West Coast? Is that because you’re really conscientious and why, why so early?

DOMINIQUE MIELLE: No, it’s just because I was based in L A and 30 is, is when the market opens at 9 30 in New York. I tried to come in a little before. Because I, I, you know, you not everybody did. I personally like to be at my seat when the market opened and ready to transact if I needed to.

STEPHEN CLAPHAM: And I mean, I don’t know much about distressed debt. You were talking about the United Bankruptcy. It took over 1000 days and, you know, negotiations often taking 1 to 2 years. It must require quite a lot of tenacity and persistence.

STEPHEN CLAPHAM: Is that why you were good at the job? And what sort of skills and qualities are required in distressed debt? It seems like complex. It’s like it’s much more complex than equities. Equities are quite simple.

DOMINIQUE MIELLE: Yeah.

DOMINIQUE MIELLE: Correct. It’s a lot about the strategy. It’s, it’s really, if you think of it as a game, it’s a game of risk or a game of chess, you have your peons, meaning are you invested in the loan or the bonds or the vendor debt or the equity sometimes? And what are the assets worth?

DOMINIQUE MIELLE: And you’re trying to position yourself as best you can to take a piece of the pie when the company emerges from bankruptcy because distressed invest is mainly buying the debt of a company that’s on the verge of bankruptcy or already in bankruptcy. So it’s very strategic. It is very creative.

DOMINIQUE MIELLE: It, as you said, requires tenacity because bankruptcies are often long. They often present twists and turns where you think you want but you didn’t. And there’s a last minute twist that can take the forms of, you know, equity holders wanting more value or a loan, not being put in place at the right time at the right rate or judge making a decision that you didn’t think he or she would.

DOMINIQUE MIELLE: So it really is a, it’s a fun area of investing really because it’s, it’s, it’s like a show. It you know, you have adversaries, you have friends of yours in, in the same layer of that.

DOMINIQUE MIELLE: You have advisor, you have to negotiate with them. You have to listen, you have to propose a plan that is actually will be voted, voted on and approved to get the company out of bankruptcy. So it is a complex process but it’s, it’s, it’s really thrilling as a as a particular asset class.

STEPHEN CLAPHAM: And when you’re making the investment is it, are you making the investment in the hope and expectation that the company will go back or are you making the Expecta investment and the expectation that these bonds are so cheap? If it goes bust, we know we can get our money back because we know that these assets and it doesn’t go bust.

DOMINIQUE MIELLE: We, we is it la the ladder. You usually have an assessment of the value of the assets and whether the bonds are covered by those assets or not. And the whole crux of the game is to understand or forge a past through which you’re gonna realize that value and that path may take the form of a bankruptcy, it may take the form of a restructuring out of bankruptcy.

DOMINIQUE MIELLE: There are many different routes you could take to get your money back and more of just plus the return. But that’s really the essential of investing trying to, to figure out the value how it’s gonna get distributed and when, and, and what triggers the de the distribution?

STEPHEN CLAPHAM: And is that, how do you assess the value of the assets? Because presumably often these are companies that may not survive or would need to be repacked? How do you understand? Is it the value of the planes or is it the value of the business in other cases? And how do you go about that?

DOMINIQUE MIELLE: And you know, that’s where my business and yours converge as the value of a company is what you do for stocks. And I do the same exercise for the value of a company for distressed bond, meaning yes, there could be hard assets, claims or intellectual property or, you know, contracts, but it’s also the value of the cash flow.

DOMINIQUE MIELLE: So when I see value of assets, I don’t necessarily mean putting a price on each piece of real estate and and, and property like you would in an auction, I really do mean valuing the business, the company like you do for stocks and then applying it with different rules of distribution to the entire capital structure and figuring out who gets what and how, how do you get the biggest part?

STEPHEN CLAPHAM: But you would go about the value of the business the same way as I would.

DOMINIQUE MIELLE: Absolutely, you know, the present value of cash flow, multiple of the dividend model, you know, hard asset or valuations, et cetera. All the classic methods, I loved in the book.

STEPHEN CLAPHAM: You were talking about a Boeing meeting where you landed the aircraft in the simulator and the JP Morgan airline analyst with encyclopedic knowledge crashed. Now the, I’m assuming this is a guy called Chris Avery who used to know everything about aviation, including the number of the plane.

STEPHEN CLAPHAM: They, the one thing he didn’t know was whether the stocks were going to go up or down, which was what he was paid to do. And are you one of these women like my wife can do it?

DOMINIQUE MIELLE: It’s not him, it’s not him.

STEPHEN CLAPHAM: Interesting.

STEPHEN CLAPHAM: But you want is my wife can do anything, right? So she just, you know, if she wants to be able to do something, she just does it, you know, so the kids were learning the piano and she was helping them learn. So she taught herself a piano. Are you one of those sort of super smart people?

DOMINIQUE MIELLE: It’s hard to call yourself super smart. I would, I would not do that. I, I you know, I’m not that vain.

DOMINIQUE MIELLE: But I think I usually try things with that. A lot of fear of failing if that makes sense. And I think that is, that is a quality that you actually learn as an investor because you fail a lot. You’re wrong. A ton and the ability to take that failure, that horrible feeling of being wrong and just moving on as if it didn’t not as if it didn’t matter.

DOMINIQUE MIELLE: Of course, it matters because you have to make the money back. But as if failures are part of your business, I think that is a great life lesson and life skills that us investors get day in, day out. Right.

DOMINIQUE MIELLE: The simple fact that you’re going to be wrong. Hopefully, you know, less than 50% of the time, but quite a few times. And of course, that’s another thing that the media tend to not talk about when they, by great investors, Ray Down and, you know, whoever it is, Warren Buffet, et cetera. It’s, it’s sort of black and white, it’s all or nothing. It’s either Bill Wong and, you know, crashing his, he, his Hedge Fund.

DOMINIQUE MIELLE: ACA goes, you know, in a spectacular way or, you know, it’s Paul Tudor Jones, never having a or David Tepper, never having a, a losing trade in their lives. Neither of those two extremes are right as, you know, as well as I do that, the daily job is to try to be right more often than wrong, but it’s hard.

DOMINIQUE MIELLE: It’s a grind and just being able to say, ok, I got that one totally wrong. You know, let me understand why. And let’s just show up at work the next day and do it again. That’s a pretty good skill. And that sort of makes you think.

DOMINIQUE MIELLE: Well, I can try to learn the piano, the path, the journey will be fun. And maybe I’m, I get there. Maybe I don’t then that’s ok.

STEPHEN CLAPHAM: No, I, I mean, there, there’s as high an instance of failure and distress that as there is in equity is there.

DOMINIQUE MIELLE: Yes, absolutely.

STEPHEN CLAPHAM: Now you talk about traveling the world, you created this C L O product and you went around presenting to investors. Why was it so important to meet people in person and why, why were you so good at this? Because you built a huge business, right?

DOMINIQUE MIELLE: We did, I did build a huge C O business, which is still growing under the guy who who replaced me and who used to work for me who’s doing a great job. And that’s, I think an essential business at Kenyon. I think it’s the meeting people in person is that’s like in any business, right?

DOMINIQUE MIELLE: Just forging a relationship is much harder through a screen, don’t you think? Yeah. Oh, of course.

STEPHEN CLAPHAM: But if you’re having to go all around the world selling, that’s really tough job. And you talked about, you said speech preparation is like makeup for French women, which I love. But you talk about a high end pitch with a white glove delivery. You believe in lavishly rehearsing, you rule out every word to the comma and practice religiously. I mean, why do you need to do that?

STEPHEN CLAPHAM: Because you know everything about the job, you know, much more on the person on the side. I mean, I couldn’t do that because I like to make it up as I go along because if I, I, no, but I would freeze if I had a script. So I, you know, if I go and do a presentation at a conference, I have a set of slides, I wouldn’t have a script because if I had a script I would screw up.

DOMINIQUE MIELLE: And if I, I think we may have touched upon a gender difference here, I think. So, I think preparation maybe over prep preparation even is at least as I have observed it, a feminine attribute and it, it is related to the fact that we think if we, that, that we underestimate our skills, right?

DOMINIQUE MIELLE: If you underestimate your skills, you tend to over prepare, you tend to compensate with lots and lots of rehearsal and knowing your scripts, et cetera. I’d say there are two things that there, there is a practical reason for having a script and, and rehearsing. Typically in a pitch meeting, there is a set of slide where you make a presentation and you want to be as smooth as possible.

DOMINIQUE MIELLE: And I’ve found over the years that really knowing your script to the comma helps a natural delivery if you get off script and it makes it, it runs a lot better because you’re talking about making the presentation five times a day for two weeks. So if you have a very, very well rehearsed show.

DOMINIQUE MIELLE: Like any show, you know, it’s like a, it’s like a play, you rehearse a play to present a very polished show and product to potential investors. That’s my way of doing it. I don’t particularly think there’s only one way of doing it, but since I was the boss, that was the way that, that my team did it.

STEPHEN CLAPHAM: Oh, I’m glad it didn’t work for you. I probably wouldn’t have lasted very long. But that, but that, I mean, I, I, it’s just interesting because I think, you know, everybody has their own way of approaching these, these sorts of things and just interesting to learn why somebody else does it in a different, in a different fashion.

DOMINIQUE MIELLE: I mean, I’ve, you know, I’ve realized that I quite like public speaking but that is the way I do it. I rehearse quite a bit before, making a formal presentation to an audience. And I think I’d be very curious, if you ask 10 women, if they didn’t give the exact same answer that they prepare copiously.

STEPHEN CLAPHAM: I, I, I mean, I don’t mean to give the impression that I don’t do any preparation but, you know, I totally get the idea of, of doing it to a script would panic me because I think, well, what happens if I, you and then you forget something and you’re, oh, whereas I’m, well, look, I know which is a better result because you’re the one that built up the $5 billion business.

DOMINIQUE MIELLE: I would say look to me it is like makeup for French women. You wanna look very good without looking like you put on makeup. That’s, that was my goal.

STEPHEN CLAPHAM: So let’s talk about the airlines because, well, that’s something else we have in common because when I was on the south side, I did, I covered the airline industry and Michael O’Leary the Ryanair boss, a couple of weeks ago indicated fares would have to go up a lot. His median fare is €40 and he’s talking at 50 to €60.

STEPHEN CLAPHAM: I have to say that if we’re going to save the planet, then, you know, we will have to fly a bit less. And I think that is probably a good thing and actually, I think it may have to be much higher than that. You’re involved in a number of the US airline restructurings in the early two thousands. The US industry is a lot more consolidated now, but we don’t have that so much internationally.

STEPHEN CLAPHAM: For example, in Europe, I just wondered, you know, how do you see the industry panning out in the next several years? We’ve got three challenges. We’ve got very indebted balance sheets, post COVID. We’ve got very high fuel prices. We don’t look like they’re going to go down and we’ve got this increasing pressure to cut emissions. So what’s gonna happen?

DOMINIQUE MIELLE: What you see? Well, you’re asking me a question that I haven’t thought about for a minute before, before this very moment. So I’m not sure I’m particularly qualified to make predictions as to. So, one thing I’d say is that at least in the US, the elasticity of demand in airline transportation was very low, meaning that fare increases would have a very direct immediate impact and, and diminish demand.

DOMINIQUE MIELLE: And of course, the problem with the airline industry is that it’s a very high fixed cost business, right? You basically have a product that you need to fill in. You have the main expenses are there whether or not you fly by a full plane.

DOMINIQUE MIELLE: So the objective has always been to fill the planes and that seems like it’s becoming very difficult with higher costs and with constraints on the on a mission and also episodes of COVID where you really, the demand is crushed anyways typical. So we’ve seen a number of, of recent bankruptcies, right in Europe and internationally.

DOMINIQUE MIELLE: I think Latin filed for bankruptcy, Scandinavian Airlines filed for bankruptcy. And that’s typically the response in every crisis, bankruptcies cutting debt and leverage on the balance sheet and then emerging if it is a, a national flagship airline, those typically emerge with or without the help of the state, a lot of times with the help of the state.

DOMINIQUE MIELLE: And then the smaller airlines simply liquidate and then it’s a blood bath for bondholders, historically, bondholders in liquidation and even in, in bankruptcies and restructurings of airlines have fared very, very poorly because there’s a lot of creditors ahead of, ahead of them. So that’s what I imagine happens, right?

DOMINIQUE MIELLE: Smaller airlines get crushed and the industry consolidates into big, bigger airlines and fares go up and with the background and the context that there’s been at least in the USA tremendous deflation on airfare in, you know, 2030 years, obviously before COVID and that inflation episode, but fares drastically went down, you know, as a product of consumption to the point you could never fly for $49.10 15 years ago from, you know, L A to San Francisco.

DOMINIQUE MIELLE: And that, that’s a fair, that’s completely normal on Southwest or was normal up until now. And I think we’re probably seeing the end of this deflation and the end of very cheap, you know, flying for, for everyday consumers.

STEPHEN CLAPHAM: Yeah, I mean, it’s, it looks to me a very bleak picture because, you know, in an inflationary environment when the economy is starting to slow, people are gonna have less money, the price is gonna go up and there’s a lot of labor in the airline industry.

DOMINIQUE MIELLE: So there’s gonna be, there’s a lot of labor, there’s a lot of fuel and there’s a ton of fixed costs.

STEPHEN CLAPHAM: Yeah, it doesn’t look too good an outlook.

STEPHEN CLAPHAM: The, I mean, there’s not a lot of crossover between our two worlds, the world of equity investing in the world of distressed debt investing. I mean, basically by the time you get interested, I should be long gone. Right?

DOMINIQUE MIELLE: You probably should.

STEPHEN CLAPHAM: Yes, but I, I just wondered, you know, you must have a sort of an obsessive focus on the opportunities to survive and a much greater granularity in cash flow, even like seasonal cash flows are cash flow is critical. But are there some things that I should, I could learn from looking at how you would approach distressed debt situation? I mean, would the seasonality of the cash flow be very important to you?

DOMINIQUE MIELLE: For example, it would be if the company was levered because of course, paying interest on your debt is not a seasonal phenomenon, you got to pay it every quarter. Some debt is even monthly, but most of it is, is a quarterly payment whether or not you have earnings coming in. So it is usually a bad combination to have a seasonal business with a high levered capital structure.

DOMINIQUE MIELLE: I think generally, I guess stock investors particularly in growth areas don’t look at the balance sheet and they don’t look at the balance sheet for a very good reason because there’s no debt right there. You know, all those tech companies don’t have don’t, don’t have debt, they have massive equity layers and that’s about, that’s about it.

DOMINIQUE MIELLE: But I do think it would help for stock investors or equity investors to understand the the bankruptcy process. And you know, I was reading this morning on Bloomberg, an article about the Cryptocurrency trading platform going bankrupt. I think it’s might be Voyager or one of such.

DOMINIQUE MIELLE: And of course, the question is, are the clients the customers of let’s say Voyager, how are they ranked versus other debtors of the company? They have their investments, their savings, their cryptocurrencies locked up in the estate, right? Because they have not been able to withdraw their funds since June 12th or so. The estate is now frozen in bankruptcy.

DOMINIQUE MIELLE: Helped by the, the what is called in the US, the state, meaning that creditors cannot take their money out and where they’re gonna rank presumably or at least that’s the initial read, they are unsecured creditors, meaning that they will get their money after secured creditors have been paid. And apparently the company has been repaying some 900 million of debt ahead of filing for bankruptcy.

DOMINIQUE MIELLE: So that’s all value and cash that’s left the estate before people got their money back. Right. So did they know, are they aware, did they have any inkling that they could be treated as sort of the last, you know, layer that receives a distribution and can take their money out? It, it matters, right? It matters a lot.

DOMINIQUE MIELLE: And this, this is kind of new territory. Because of course, those those companies are, are brand new and it’s, it’s not completely clear who stands where in the bankruptcy claim distribution. But I think it would help in some instances, some equity investors or to understand the process. Yeah. And look at the balance sheet.

STEPHEN CLAPHAM: The crypto world is something I find fascinating but totally incomprehensible when I was reading about, you know, the various fascinations recently. And one of the companies I’ve forgotten which they were letting people claim interest of 15 plus percent on their crypto holdings, not just once but more than once.

STEPHEN CLAPHAM: And I’m like, I’m completely baffled as to how anybody could, could manage to, first of all claim 15% interest when interest rates are for and then do it more than once I’ve been doing, doing the whole crypto world. I, I must say I find it very interesting but I find it, I’m obviously, you know, I need to be half my age to even think about understanding it.

STEPHEN CLAPHAM: I went to meet a friend of mine who was over from New York and he was attending a crypto conference in London and I, I went, met him for lunch and, I was the oldest person in the room. I mean, you know, the next oldest person was like, 20 years younger than me. I felt ancient. It was horrible. Funny. But I was just reading in there to you the other day.

STEPHEN CLAPHAM: The value of distressed bonds in Europe is rapidly rising at the end of 21 it was about six billion and it’s now about 40 like doubled in the last month. Is this going to be a bonanza for distressed debt investors? This, you know, the interest rates rising, is it going to rise a lot further from the sound of it?

DOMINIQUE MIELLE: They’re gonna arise a lot further. It could be, it really could be the first episode of true solid supply of distressed opportunities because, and I say that because you, you, you know, someone could object that in 2020 with the COVID eruption, there was quite a bit of distress bonds.

DOMINIQUE MIELLE: But what happened then is that the amount at least in the US of distress bonds quickly rose and then disappeared within three months. And so the distress episode was very shallow and you know, the biggest distress that was I think it was hers, which was I wanna say 25 billion in liabilities. It’s tiny when you think of a Lehman brothers back in 2008, which was, you know, 600 billion or so.

DOMINIQUE MIELLE: So it was small bankruptcies and very quick turnaround. Why? Because the FED intervened very quickly and very massively and the market rallied and distressed disappeared this time around the FED is acting the opposite way. They are shrinking their balance sheets so far from helping resolve a distressed episode, they are actually helping to create it.

DOMINIQUE MIELLE: So, and then if you think about what is a distressed bond, it’s typically a bond that, that trades at a spread of 1000 over the, the risk free rate.

DOMINIQUE MIELLE: Of course, when the risk free is, is next to zero, that’s 10% that’s attractive. But you know, when it’s, if it’s three or four or 5% that then you have a really attractive type of return for, for the distressed asset class, which will, you know, I’m sure attract a lot of a lot of investors.

DOMINIQUE MIELLE: So it seems like we could be on the cusp of a really interesting window of, of opportunity. The trick however, is that most distressed investors of size are already investing, invested already long. So, you know, they’re probably gonna go through quite a bit of losses at this year. So if you’re a new investor, that’s great. If you’re invested already, it’s tough.

STEPHEN CLAPHAM: The, the number of zombie comp companies out there, you know, where their interest is more in the earnings. Is that something that has been a problem for distressed debt investors because the companies haven’t been forced to go bust?

DOMINIQUE MIELLE: Yeah. It’s I mean, it’s helped sometimes because you continue to collect interest and it’s also unhelpful because at the end of the day, the goal of distressed investing is not to prolong the life of a company that really has no future. It really, on the contrary, it’s to restructure it to make it thrive on the other side.

DOMINIQUE MIELLE: And if there’s no catalyst because rates are so low that it can struggle along, but not file for bankruptcy, not cut its debt, not re restructure its capital structure and its assets, then you really don’t have a chance for a new start.

DOMINIQUE MIELLE: So I, and, and again, that of course changes with higher interest rates in many ways, you know, I think a lot of young investors will be facing a scenario that they’ve never seen, right? I mean, you and I were investing in the early 2000 where rates where, you know, treasuries were at 5% they haven’t ceased to go down since.

DOMINIQUE MIELLE: But I don’t think anyone has seen rising inflation and I certainly have not been in a, in a very high inflation rate environment for a prolonged time. And I think a lot of investors, if they’re in their thirties have no idea that treasuries could be 34 or 5%.

STEPHEN CLAPHAM: No.

STEPHEN CLAPHAM: Well, I mean, that’s an interesting point you make, of course, the the inflationary inflationary environment I find particularly interesting, I mean, I’m quite old so I’ve seen quite a few cycles but I haven’t invested in a period of inflation and very few people who are investing then are still investing today and I interviewed Mario Gabe for Real Vision last summer, actually, about a year, last June and I was asking him and I kept asking him the same question, you know, what was it like?

STEPHEN CLAPHAM: What would you do? And, and he was very reluctant, I don’t know why he was reluctant to be drawn on it. He just made one comment. He said that inflation is a bit like toothpaste. Once it’s out of the tube, it’s very hard to get it back in which I don’t think was an original comment.

STEPHEN CLAPHAM: I think somebody said that. But it’s a good point you make because obviously a lot of people listening to this podcast will be younger people in their late thirties or whatever and it’s something to remember.

DOMINIQUE MIELLE: Oh yeah.

STEPHEN CLAPHAM: Well, I never, I never thought that it’s perfectly, perfectly possible. I mean, I think it’s, it’s possible but unlikely because he is one of those people that can remember the number of shares and issue in each stock. And I’ve noticed this a lot of very smart investors, they always remember the number of shares and so they can work out the market capitalization from the current share price.

STEPHEN CLAPHAM: And it’s a very good trick to be able to do because knowing the market cap is kind of like an essential tool when you’re thinking about the business. And of course, a lot of a lot of young analysts think about, you know, the pe ratio or the E V or whatever. And they don’t think about, well, how much am I paying for this business?

STEPHEN CLAPHAM: Doesn’t make sense. And it’s one of the things I do say in the courses is, you know, you start off and say, ok, how much am I paying for this company? Netflix? $300 billion. Does that sound like the right number? And, obviously, $300 billion wasn’t the right number for Netflix.

STEPHEN CLAPHAM: And it’s now under $100 billion which is more realistic but possibly still not a bargain. I don’t know. We’ll see you say in the book that you like going to museums, you, you find it therapeutic. You live in L A. Where did you go? The Getty Museum is the only museum I managed to find in L A. Was that, that I really liked and it was brilliant. Where would you recommend?

DOMINIQUE MIELLE: I think the Getty is, is, is my favorite museum. And there are two of them. We’re talking about the Getty Center which has the collection of old masters. But there’s also the Getty Villa which has antiquities and is, is quite good, quite interesting. And it has a an exhibit exhibition about Persia right now, which I love. The second one I would recommend is the Norton Simon Museum.

DOMINIQUE MIELLE: Norton Simon was a, an American businessman who managed to amass a wonderful collection quite recently. If I remember correctly, it’s sort of in the 19 fifties or so that he began collecting with enormous success and it’s, it’s a beautiful, encyclopedic collection. He’s got also East Asian Art. The building is beautiful. It’s in Pasadena. It’s, it’s great.

DOMINIQUE MIELLE: But yes, Steve L A is not a museum city like London or Paris. And while, while I’m in Paris, I go to the museum every day, sometimes twice a day.

STEPHEN CLAPHAM: Oh, wow. Well, I’m in Paris. I did some fantastic stuff.

DOMINIQUE MIELLE: It is just incredible.

STEPHEN CLAPHAM: It’s a lovely, lovely city. I just, I so enjoy going there a couple of weeks ago. Listen, it’s been lovely talking to you. I always ask people the same closing question. Can you recommend a book to somebody who is thinking about a career in distress, debt investing or a career in investing a young person? What would you recommend?

DOMINIQUE MIELLE: Yeah, I’m gonna recommend mine. Of course, I’m gonna recommend mine. It’s a light short read that’s meant for practitioners and people and, and layperson who’s never worked in the field and don’t know anything about hedge funds or distressed investing.

DOMINIQUE MIELLE: Then after that, I got to confess that I don’t read a lot of finance books. I read a ton, novels, nonfiction, poetry plays, but not a lot of, finance books because I typically find them quite dry. I, I guess, my favorite ones, are not about distress and they’re sort of more, they’re either funny or thrillers.

DOMINIQUE MIELLE: I thought Black Edge was very good. That’s about the Steve Cohen Hedge Fund. That was loosely the inspiration for the TV show Billions. And of course, the classic Liar’s Poker by Michael Lewis is, I think a must read. That’s, that’s quite fun.

STEPHEN CLAPHAM: The live book is a great book and of course, your books lovely. It’s a lovely book. Very easy to read and Black Edge.

DOMINIQUE MIELLE: I’ve not read that so I’m going to, oh, it’s, it’s, it’s, it’s great written by, by a female journalist, very well documented and researched and it’s a page for her.

STEPHEN CLAPHAM: Oh, brilliant Dominique. Thank you so much. It’s been a pleasure talking to you. Thank you for coming on the podcast.

DOMINIQUE MIELLE: Thank you, Steve.

STEPHEN CLAPHAM: Well, that was an interesting discussion.

STEPHEN CLAPHAM: You may have sensed that I didn’t agree with Dominique on a number of issues. But the whole point of this podcast is to learn to challenge existing views and to gain a broader perspective. And I think we succeeded in that.

STEPHEN CLAPHAM: This podcast is aimed at serious and aspiring equity investors. I hope you enjoyed it. And if so, please leave us a review on Apple podcasts and please check out our other great content on the website behind the balance sheet dot com.

STEPHEN CLAPHAM: Did I mention the free substack? Thanks for listening. And the podcast is now also available on Amazon music.