Jonathan Lewinsohn – Diameter Capital Partners (Manager Meetings, EP.05)

Episode Summary

Executive Summary: Kristen Van Gelder and Jonathan Lewinson discuss how Evanston Capital backed Diameter Capital on day one and why it has become a core, all-weather credit allocation. Lewinson explains Diameter’s philosophy: stay liquid, span the full credit spectrum, combine research with trading, and use macro context plus security selection to generate returns across cycles—especially in volatile periods like COVID.

Main Topics: Why Evanston invested on day one (Priority: 5/5): Kristen explains that Evanston knew the founders from prior firms, validated their track records through references, and liked the complementary skills, nimble style, and aligned incentives of a startup manager. Lewinson’s path into credit investing (Priority: 5/5): Lewinson traces his interest in investing to childhood exposure to Wall Street, then to banking, law school, and a judicial clerkship that led him toward distressed investing as a way to combine law and markets. Diameter’s all-weather credit mandate (Priority: 5/5): Diameter was designed to invest long and short across investment grade, high yield, stressed, and distressed credit, seeking the most liquid way to express views and avoid being trapped in one niche or cycle. Liquidity, portfolio construction, and risk management (Priority: 5/5): The firm emphasizes a liquid book, moderate concentration, frequent portfolio review, and flexibility to cut exposure quickly when macro conditions shift, rather than relying on illiquid toehold positions. COVID as a case study in active credit trading (Priority: 5/5): Lewinson details how the firm reduced cyclicals early, shorted travel-related credits, rotated into investment-grade and software bonds, and benefited from the Fed-driven rescue/new-issue environment. How Diameter thinks about distressed investing (Priority: 4/5): The firm is selective in distress, preferring cyclical problems with a path to recovery, avoiding structurally broken businesses, and aiming to be influential in restructurings without getting stuck owning reorg equity. Culture, process, and hiring at Diameter (Priority: 4/5): Diameter built a process-heavy, flat organization that prizes written work, weekly reviews, and deep industry workups; the firm learned that startup-minded recruits differ from candidates at established platforms.

Key Arguments: Evanston backed Diameter early because the team was familiar, credible, and complementary, reducing launch risk despite the lack of a track record. Diameter’s edge comes from pairing research and trading, allowing it to understand both fundamentals and market technicals. Credit should be managed as an all-weather product, not just a cyclical distressed strategy; flexibility across the full spectrum matters more than specialization alone. A liquid portfolio is essential because crowded, illiquid positions can become dangerous when regimes change quickly. Concentration is useful only when conviction and downside analysis are strong; otherwise it becomes a way to drift toward mean performance. Shorting is a legitimate part of investing in credit because it allows the firm to express negative views on deteriorating businesses and avoid bias. Distressed investing works best when problems are cyclical rather than secular, because recovery is possible before structural decline overwhelms value. Writing and rigorous sourcing help discipline thinking, expose weak assumptions, and reduce narrative-driven bias. Macro context matters, but the firm mainly uses it to frame micro decisions about industries, capital structures, and liquidity. Diameter’s success during COVID showed the value of speed, liquidity, and native market relationships, especially in new issue and rescue financings.

Data Points: Evanston Capital assets: $4 billion - Kristen Van Gelder’s firm, described as a hedge fund of funds Diameter Capital flagship fund AUM: $6 billion - Credit-focused hedge fund managed by Diameter Diameter CDOs: $1 billion - Additional assets managed by Diameter Diameter drawdown fund: $1 billion - Additional capital vehicle managed by Diameter Evanston relationship length: 18 years - Kristen has been at Evanston alongside Adam Blitz and the team Diameter age at interview: 4 years - Kristen describes Diameter as four years into its business Capital allocators university start date: September 21 - Mentioned in the ad break as the start of the first cohort Alpha Summit 2025 dates: October 6th through 8th - AlphaSense event announcement in Brooklyn COVID travel short example bond move: 90 to 50 - Lewinson describes shorting a five-year travel bond in February 2020 COVID crisis auto sales example: 16 million to 8 million - U.S. auto sales discussion showing how quickly assumptions broke in 2008-09 Diameter distressed exposure at COVID peak: mid-30s percent - Main fund allocation to distressed at the peak of COVID Government/timeline reference: March 2008 to Christmas 2008 - Senior secured bank debt moved from high 80s to 50s during the financial crisis Typical investment size view: mid-sized allocation / among top holdings - Kristen says Diameter started as a mid-sized allocation and became a top holding Public market analogy: 2x speed - Lewinson says he listens to podcasts and audiobooks at 2x speed

Pivotal Quotes: "We really think of Diameter's flagship fund as an all-weather credit strategy." — Kristen Van Gelder: Explaining why Evanston views Diameter as ballast in its hedge fund portfolio "We really believed that we wanted to have particularly in a bull market. A less concentrated book." — Jonathan Lewinson: On Diameter’s preference for diversification and liquidity over oversized positions "A hedge fund at its core is not supposed to absorb volatility. It's supposed to be able to trade volatility and make money even in periods of volatility." — Jonathan Lewinson: Describing the firm’s philosophy entering and navigating crisis periods

Implications: Listeners get a clear model for how a flexible credit hedge fund can be built: liquid, cross-spectrum, and process-driven. For the industry, it underscores that speed, breadth, and downside discipline can matter more than traditional distressed specialization.