Masters in Business• Mar 14, 2026• 57:53Interview

Risk and Return: Masters in Business with Matt Cherwin

From Masters in Business

Matt Cherwin•Co-Founder and Chief Investment Officer, Merrick Capital

Executive Summary

The modern financial system is undergoing a de facto recreation of the Glass-Steagall Act, with risk being pushed from traditional banks to a new set of 'G-SIBs' like Apollo, Blackstone, and KKR.
Merrick Capital holds a high-conviction, contrarian bullish view on trophy-quality office real estate in gateway cities, citing a severe supply-demand imbalance for new, high-end properties.
The firm's core risk management philosophy is that firms fail due to their liabilities, not their assets, leading to a focus on understanding the 'engine room' of the financial system.
The market is underestimating the power of 'financial flywheels,' where easing financing conditions can rapidly create and recover value, and the potential for a significant policy shift at the Federal Reserve under new leadership.

12 quotes

Concerns Raised

Systemic risk originating from liability and funding mismatches
The complexity of the disaggregated financial system where risk is less transparent
Potential for policy missteps by a Federal Reserve that is too reactive to short-term data

Opportunities Identified

Investing in mispriced debt and equity of trophy-quality commercial real estate
Capitalizing on dislocations created by the structural shift of risk from banks to non-bank financials
Finding cheaply priced risk in securitized products linked to the AI capital expenditure boom
Positioning for the powerful effects of 'financial flywheels' as financing conditions ease

Key Themes

The Great Disaggregation of Finance

The post-2008 regulatory landscape has forced a structural shift, pushing complex risk-taking activities out of traditional, highly-regulated banks. This has led to the rise of alternative credit managers and specialized trading firms (e.g., Apollo, Blackstone, Citadel Securities) who now perform systemically important functions, effectively becoming the new G-SIBs.

This fundamental change in market structure creates new opportunities and risks, as the sources of capital, liquidity, and systemic vulnerability have moved outside the traditional banking perimeter.

Contrarian Bullishness on Trophy Real Estate

Despite broad bearishness on commercial real estate, there is a significant, mispriced opportunity in the highest-quality 'trophy' office buildings in gateway cities. A complete halt in new construction has created a severe supply shortage for modern, desirable office space, leading to pricing power for existing top-tier assets.

This out-of-consensus view suggests that investors should look past the headline weakness in CRE and analyze the bifurcated market, where a specific sub-sector may offer compelling returns in both equity and related debt.

The Intertwining of Rates and Credit

The traditional concepts of a 'risk-free rate' and a distinct 'credit spread' are no longer separate. Monetary policy, government financing needs, and market liquidity are now so commingled that rates and credit risk must be analyzed as a single, integrated system.

This perspective challenges conventional asset allocation and risk modeling, requiring a more holistic approach to understand how changes in one area will directly impact the other, rather than treating them as independent variables.

The Power of Financial Flywheels

Markets currently underestimate the self-reinforcing power of positive financing dynamics. When rates fall and credit spreads tighten, the 'machine' of financial engineering can accelerate rapidly, unlocking and creating asset value in ways that linear models fail to predict.

This highlights a potential upside risk that is being overlooked, suggesting that as monetary policy eventually eases, the recovery in certain asset classes could be faster and more powerful than currently anticipated.

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Topics

Financial System Structure Glass-Steagall Act G-SIBs Private Credit Alternative Credit Risk Management Liability Management Commercial Real Estate (CRE)Trophy Office Properties Securitized Products Mortgage-Backed Securities (MBS)Federal Reserve Monetary Policy Interest Rates Credit Spreads Artificial Intelligence (AI)Repo Crisis 2019 Financial Regulation

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