Troob Capital Management’s private credit strategy

Transcript

My name is Peter Troob. I'm the managing member and co-founder of Troob Capital Management. We've been a firm for 20 years investing in everything from distressed to long-short credit to long-short equity to short credit. But our most lucrative investments have always been in the private credit space and the private equity space. 

When we sold our business in 2000, we realized, we thought to ourselves that the small businesses would get financed by small banks, local banks, that actually exactly did the opposite. The local bank is now just more or less run away from the small business and small entity need. But they really don't get served by any other players in the marketplace. Most of the larger players don't even want to look at something under 20 million, and most of the smaller players are either unsophisticated or don't come at it with an eye towards building that business. 

That's what the firm solely focuses on right now. Providing liquidity needs to companies that begin at under $20 million because that's where the market is pretty inefficient. I can guarantee that no matter how hard we try, we're going to be touching a minuscule fraction of what's out there in the country. There could be a hundred, a thousand, of mes and my firms and we wouldn't run into each other. It's just, there is that much need in the country. Basically, would you say, what do you need? And then we try to structure our investment around that need. 

We don't want to stay in a box. It doesn't seem so hard, but I think a lot of investors have sort of gone through the business school process and they're just boxed in. I think it's just about being sort of creative just, you know, getting out of the box of what you have to do and doing what makes sense for the borrower. And so I just think from an investor's standpoint, it's a lucrative sort of fertile ground to make money and do well. But it's hard. It's, you know, it's hard. 

For instance, we own airplane parts and landing gear. You can take landing gear and you can lease it. You're effectively taking a hard asset and you've created a bond out of it, so you get paid every month. And then at the end, you sell that airplane part. You can actually exchange, meaning every time an airplane needs landing gear, you can put your landing gear on that airplane, take the old one, and the air carrier will pay you to fix that other one, plus an amount of money to then have it ready for them for another exchange. You can keep doing these exchanges, or you could actually just own the asset and then resell the asset.

So what is that? I mean, that is basically taking a hard asset which you own. You have security interest or you own it and you're actually turning it into a number of different types of assets. Everything from a cash flowing almost bond on an asset to a sale of that asset, where it's like you're buying something at a discount and selling it somewhere between mid-teens and twenty. The type of returns on those types of that specific asset, you have to control your costs.

Remember, there are hidden costs here. You own the asset. You better be insured, right? You have to have storage. These aren't that simple. There's nothing simple. But if you know what you're doing, you contain your costs. And you can do that. By the way, with airplane parts or jewelry or bourbon barrels or raw land like, there's lots of ways to take an asset and create a cash flow stream. A song for that matter, you know, a book. You know, they all have cash flow streams and it's an asset. And as long as you're flexible, you can use it in a lot of ways. So that's what we do on a lot of our investments, not all, but on a lot of our investments.