Issue No. 3

When Conor approached me about co-founding Pier, he gave me the book “How Google Works” by Eric Schmidt. The main takeaway of the book is that to develop a culture of innovation, you should hire a specific type of employee, which Schmidt coined a smart creative.

‍Smart creative (n) – a person who combines deep technical knowledge of his or her trade with intelligence, business savvy, and creative qualities.*

‍It has been our intention to have an investment firm as innovative as tech companies like Google and so this concept resonated with us.  In fact, it appealed to us to such an extent that we made our first Founding Principle to “build a team of smart creatives.”  Following this principle has resulted in a team that first and foremost relies on data for decision making, but also uses original models to problem solve. Our culture of sharing contrarian opinions, finding solutions, being flexible with roles, acting as self-starters, and questioning the way we do things is a critical ingredient in our success preserving and developing the firm.

With all that said, we are kicking off the hiring process for an Investment Associate or VP. Send smart creatives our way! Please make an intro to jobs@pieram.com. Job descriptions here: https://www.pieram.com/jobs. We’re excited to continue to grow the investment team.

- Jillian Murrish

*Source: Carrus.io

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Predictable cash flows drive everything we do. Whether we are buying a loan portfolio or providing a credit facility, we are creating some kind of runoff cash flow model over the remaining life of a loan portfolio. Projecting out principal and interest payments, defaults, pre-payments, and servicing fees on the portfolio may seem like a straightforward concept. However, it can be tricky on complicated loan products like revolving lines/cards, student loans with grace periods, and loans with built-in forbearance options.

If modeled correctly, we can stress those more nuanced inputs to see how our returns and margin of safety change as borrower payment behavior changes. The key is having confidence in the initial expectations and then knowing how much to realistically stress those assumptions.

For credit facilities, we run those cash flows against our outstanding debt and terms of the runoff waterfall (usually servicing fees, then interest, then principal). For example, if a facility at an 85% advance rate were to end and the portfolio were to run off today, would the cash flows be enough to pay off all of our principal and interest? And with what margin of safety?

Let the Excel fun begin...

- Conor