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

Episode Summary

Executive Summary: The conversation centers on Diameter Capital’s launch and investing philosophy: a flat, highly process-driven, all-weather credit platform that blends fundamental research, trading, and macro awareness. Jonathan Lewinson explains how his legal and investing background shaped his view of credit, why distressed investing has become less attractive structurally, and how Diameter seeks to exploit dislocations across investment grade, high yield, stressed, distressed, and shorts while staying liquid and nimble.

Main Topics: Evanston’s Day-One Backing of Diameter (Priority: 5/5): Kristen Van Gelder explains why Evanston invested at launch: strong familiarity with the co-founders from prior firms, extensive reference checking, complementary skill sets, and an early-stage investment mandate that values talent and alignment before a track record exists. Jonathan Lewinson’s Path Into Credit Investing (Priority: 5/5): Lewinson traces his route from a Wall Street upbringing to Morgan Stanley, Yale Law School, a clerkship with Richard Posner, and then into distressed credit at Anchorage after recognizing that credit investing combined law, business, and macro analysis. Diameter’s All-Weather Credit Model (Priority: 5/5): Diameter was built to move across the full credit spectrum—investment grade, high yield, stressed, distressed, and shorts—using a flat organization where analysts and portfolio managers collaborate closely, with an emphasis on liquidity and speed. Lessons From Financial Crises and Market Cycles (Priority: 5/5): Lewinson describes how the 2008 crisis taught him to focus on downside protection, liquidity, and narrative shifts, and how those lessons informed Diameter’s response to COVID by rapidly reducing risk, shorting cyclical names, and buying high-quality credit on dislocation. Why Distressed Investing Has Changed (Priority: 4/5): He argues that distressed credit is more crowded and less attractive because central banks shorten cycles and many distressed businesses are secular losers rather than cyclical recoveries. Diameter therefore uses distressed selectively and only when the setup is cyclical and tradable. Shorting as a Core Part of Credit Investing (Priority: 4/5): Shorts are not treated as mere hedges; they are a consistent tool for expressing negative views on companies and industries that are breaking under macro, technical, or secular pressure. This supports a more complete, unbiased portfolio construction approach. Process, Writing, and Team Construction (Priority: 3/5): Diameter’s culture is highly structured: internal research, weekly portfolio reviews, annual off-sites, and written memos help force rigor and reduce bias. The firm hires people suited to a startup but also to a demanding, process-heavy environment.

Key Arguments: Early-stage investing works best when managers are backed before their track record is fully formed, especially when references and prior relationships can verify judgment and character. Scott Goodwin and Jonathan Lewinson were attractive because their skills were complementary: trading/performing credit plus research/distressed/restructuring. A nimble, liquid portfolio matters more than concentration for its own sake; concentrated positions can become crowded and vulnerable when the cycle turns. Credit investing requires constant macro context because company outcomes are shaped by broader demand, policy, and liquidity conditions. Distressed investing is less structurally compelling today because central banks compress cycles and many distressed businesses are secularly challenged, not cyclical. Shorting should be viewed as a legitimate source of alpha, not just a hedge, because many businesses and industries fail over time. During COVID, the ability to quickly reduce gross/net exposure, short travel/cyclical names, and rotate into investment-grade bonds created significant advantage. Writing and documentation improve investment quality by forcing sources, reducing bias, and making narratives testable rather than intuitive. Diameter’s edge comes from being small enough to be nimble but large enough to matter to banks, advisors, and the market. The firm does not believe in becoming quasi-private-equity owners of troubled businesses; it prefers to trade around credit risk rather than try to operationally fix companies.

Data Points: Diameter Capital AUM (main hedge fund): $6 billion - Jonathan Lewinson describes Diameter’s credit-focused hedge fund size. CDO capital: $1 billion - Diameter also manages a separate CDO business. Drawdown fund capital: $1 billion - Diameter manages an additional drawdown fund. Evanston Capital AUM: $4 billion - Kristen Van Gelder is Deputy CIO at Evanston Capital, a hedge fund of funds. Diameter launch size: about $1 billion - Lewinson notes the firm launched with about a billion dollars. Early Anchorage growth: to $13 billion - Lewinson says Anchorage’s main product grew from a small amount of capital to about $13 billion. Years before interview at Diameter: 4 years - The firm was described as four years into its business. Evanston relationship length: 18 years - Van Gelder says she has worked at Evanston alongside Adam Blitz and team for the last 18 years. Capital Allocators University start date: September 21st - Mentioned in the ad read before the interview. Hedge funds trusting AlphaSense: 75% - AlphaSense claims access/trust among the world’s top hedge funds. Premium sources on AlphaSense: 500 million+ - AlphaSense platform claim. Expert call transcripts on AlphaSense: 240,000+ - AlphaSense platform claim. Hertz shorting example timing: February 2020 - Lewinson discusses shorting travel-related credit before the COVID market collapse. Asset level during peak COVID distress: mid-30s - He says distressed represented about the mid-30s percentage range of the book at the peak of COVID.

Pivotal Quotes: "We really think that Scott and John brought really complementary skill sets to what they were trying to start." — Kristen Van Gelder: Explaining why Evanston backed Diameter on day one. "We think that hedge fund is supposed to be a macro product is saying to investors we think that in different environments ups and downs we don't have to be that different in what we return because that's how we are constructing a portfolio." — Jonathan Lewinson: Describing Diameter’s philosophy of delivering returns across market regimes. "The freedom to think long and short is really what allowed us to realize that COVID was really bad and then turn around and say, we still think COVID is really bad, but the Federal Reserve just said they're going to buy investment bonds." — Jonathan Lewinson: On how Diameter rotated from caution to opportunistic buying during the 2020 crisis.

Implications: For investors, the message is that durable credit alpha comes from liquidity, speed, and macro-aware security selection—not from being permanently long or tied to distressed. For managers, process and team design matter as much as ideas.