Overview of Risk and Reward with Merrick Capital Co‑Founder Matt Sherwin
Episode: Masters in Business (Bloomberg Radio) — host Barry Ritholtz interviews Matt Sherwin, co‑founder and CIO of Merrick Capital. Sherwin (former JPMorgan / Citigroup trading and risk executive) explains why he left big banking to start Merrick, describes the firm’s investment lens and structure, and lays out the portfolio opportunities and risk framework they’re pursuing in today’s disaggregated financial system.
Key takeaways
- Career turning point: Sherwin’s move into treasury/CIO roles in late 2019 (repo stress → pandemic) gave him an “engine room” view of how money, leverage and market plumbing actually work — a perspective that helped define Merrick’s approach.
- Investment lens (MCCLR): Merrick analyzes markets through five drivers — Money, Capital, Credit, Liquidity, Regulation — and uses that to connect macro policy to specific credit and securitized opportunities.
- Firm structure: Merrick runs a single, collaborative multi‑asset credit book (rates, agency/non‑agency mortgages, ABS, CLOs, corporate credit, related equities) — trading actively and combining long/short positions to both protect convexity and capture idiosyncratic dislocations.
- Opportunity set: Sherwin sees unusually attractive opportunities in securitized credit, specialty finance and selected commercial real estate (trophy/gateway offices) due to financing “flywheels” (lower rates → tighter spreads → refinancing → higher valuations).
- Regulation & policy matter: Deregulation and potential Fed leadership changes (Kevin Warsh mentioned as a catalytic appointment) could materially change market dynamics; markets sometimes overreact to regulatory news, creating tradable gaps.
- Risk framework: Preferred stress‑based approach (multiple stress scenarios, exit plans, focus on liabilities as the real failure mode), not just point estimates like VaR.
- AI usage: Merrick uses AI to accelerate internal tooling and research. More importantly, Sherwin views the AI CapEx boom as a source of securitization and novel credit risk that can be assessed and selectively financed.
- Culture & positioning: Putting partners’ names on the door (Merrick = Matt + Derek) emphasizes reputational alignment, speed and entrepreneurial flexibility compared with large banks.
Topics discussed
- Sherwin’s career arc: Penn econ → finance, 20+ years at Citi/JPMorgan in mortgages, securitized products, rates and credit; and the transformational insight gained when moving into treasury/CIO roles in 2019–2020.
- The 2019 repo wobble and pandemic period: why seeing the plumbing up close changed his risk view.
- How the financial system is disaggregating: emergence of large alternative asset managers/private credit as de facto GSIB‑like credit creators; trading firms as market‑making engines.
- MCCLR framework (Money, Capital, Credit, Liquidity, Regulation) for connecting policy to prices.
- How regulatory signaling (and re‑tightening/loosening) creates both perceived and real opportunities — and how many market participants misinterpret some regulatory moves.
- Specific market events: the tweet/announcement about $200bn of GSE agency MBS purchases and how such policy signaling impacts mortgage/agency markets.
- Real estate views: selective bullishness on trophy/gateway office assets (conversion, supply/demand dynamics) despite broader negative headlines on office vacancy.
- Risk management philosophy: stress testing, liquidity, liabilities first, and exit planning.
- AI as both a tool for operations and a driver of new financing/securitization opportunities.
Notable quotes and insights
- “I went from being the captain of the ship to going to work in the engine room.” — on moving into treasury/CIO and seeing system mechanics.
- MCCLR (Money, Capital, Credit, Liquidity, Regulation) — Merrick’s core analytical lens.
- “You don't go out of business because of your assets — you go out of business because of your liabilities.”
- “I really, really hate the phrase ‘money good.’” — caution against complacent balance‑sheet language.
- Investment mandate (simple framing): “Make money when markets go up. Make money when markets go down.”
Merrick Capital: strategy and structure
- Entity: Hedge‑fund style vehicle running one integrated portfolio.
- Team: Specialists in rates, mortgages (agency & non‑agency), ABS, CLOs, corporate credit; daily trader‑to‑CIO communications.
- Portfolio construction: Active trading, mix of longs and shorts, ~20 thematic “trades” (each can contain many line items), emphasis on convexity management and exploiting cross‑market dislocations.
- Edge: Applying the MCCLR framework to extract arbitrage and relative value across large but segmented credit markets; speed and flexibility compared to GSIBs.
Risk management approach
- Stress‑first mindset: construct multiple stress scenarios (rate moves, credit crunch, flight to quality, policy shocks) and use them as conversation starters for portfolio attribution and exits.
- Liquidity and liabilities focus: precautions around funding/liability structure because liquidity dries up faster than asset prices sometimes.
- Active, iterative positioning: daily reassessment of whether holdings remain the “best version” for the thesis; hedges and shorts used to protect convexity.
Where Merrick sees opportunities
- Securitized credit and specialty finance: mispricings driven by mandate‑driven investors, regulatory misunderstanding and the disaggregation of the market.
- Agency & non‑agency MBS: policy interventions (GSEs, Fed) create technical events and convexity trades; large market size means headline dollars (e.g., $200bn) move markets but often are only one piece of the longer‑term picture.
- Trophy office / gateway CRE: a selective, out‑of‑consensus bullish view on high‑quality office assets in major markets due to tight supply for premium space and evolving conversion dynamics.
- AI CapEx and securitization: new forms of financing for AI infrastructure/capex could feed securitization or corporate financing opportunities — novel issuance that can be analyzed and selectively financed.
How Merrick uses AI
- Internal tooling: builds analytics and research tools far faster than traditional development cycles (weeks vs. years).
- Opportunity sourcing: views AI investment cycle as a source of securitizable cash flows and idiosyncratic credit risk to evaluate.
- Caution: AI is not yet a standalone solution for all risk management — it’s a supercharged productivity and analysis tool now, with more governance uses (compliance, KYC) on the horizon.
Practical recommendations / action items for investors
- Learn the MCCLR lens: incorporate money/capital/credit/liquidity/regulation into how you think about markets — not just price moves.
- Stress‑test liabilities, not just asset marks: focus on funding and exit paths before a shock occurs.
- Look for financing flywheels: lower rates + tighter spreads can create strong positive feedback loops for specific asset classes; identify where refinancing boosts value materially.
- Monitor policy & regulation closely: the market reaction to regulatory changes often overshoots — that's tradable if you understand the mechanics.
- Explore structured credit selectively: dislocations and first‑time issuers can be profitable but require deep underwriting and structural analysis.
- Use AI to accelerate research and tooling, but pair it with human judgment and robust stress testing.
Quick practical notes & context
- Interview source: Masters in Business (Barry Ritholtz), Bloomberg Audio.
- Timing/context: Merrick formed after Sherwin’s big‑bank experience (Merrick launch cited in 2024); discussion references 2019 repo stress, pandemic, and potential policy catalysts in mid‑2026.
- Cultural detail: founders emphasize personal reputation (firm named for Matt + Derek) and a willingness to move quickly and build tools internally.
Advice Sherwin gives to graduates / junior hires
- Treat investment/trading roles as trial periods: give it 3–5 years, learn from strong mentors and teams, then decide.
- Choose to work with people who will teach you — fit and culture matter as much as role.
- Be curious and build the ability to see the system (not just positions) — the “engine room” view is a career multiplier.
If you want, I can extract a short, shareable 3‑bullet summary for social posts or a 60‑second audio show notes blurb.