From SeaWorld to maritime debt, Goldman Sachs alum Gregg Hymowitz built his fortune by buying distressed businesses and partnering with activists like Nelson Peltz. Index funds and leverage keep him up at night.
By John Hyatt Forbes Staff
Gregg Hymowitz is CEO and founder of EnTrust Global, an alternative asset management firm with $18.7 billion in assets. A Long Island native, Hymowitz, 58, studied political science at State University of New York at Binghamton, graduating Phi Beta Kappa in 1987. Harvard Law School came next, followed by a short stint working in mergers and acquisitions for the white-shoe law firm Skadden. He joined Goldman Sachs in 1992 and helped grow the firm’s ultra-high-net wealth management business.
Hymowitz and two Goldman colleagues, Michael Horowitz and Mark Fife, struck off on their own in 1997, launching EnTrust Capital with 125 clients and $750 million of assets. Hymowitz bought out his partners in 2008 and 2013, and in 2016, Hymowitz combined EnTrust with Legg Mason’s hedge fund, selling 65% of his stake for $400 million. Hymowitz bought the stake back in 2020, and has since since sold 20% of the business to Brunei’s sovereign wealth fund (which is also an investor in EnTrust’s fund). Hymowitz is worth an estimated $1.7 billion between his 80% stake in EnTrust, his personal investments in EnTrust funds and other assets.
Hymowitz’s big innovation: event-driven co-investments, wherein EnTrust partners with other billionaire activists to help finance their campaigns. For example in 2016, EnTrust invested $650 million in Nestlé SA alongside billionaire Dan Loeb’s Third Point LLC as it wagered $3.5 billion, pushing the food maker to reorganize its business. EnTrust has also partnered with Nelson Peltz’s Trian Fund Management, and has run a successful fund-of-funds business investing in other hedge funds. In recent years, Hymowitz has capitalized on the private credit boom, growing a niche maritime lending book.
Forbes: How did you get your start as an investor, especially coming out of law school and beginning your career as a lawyer?
Gregg Hymowitz: Back in the late 1980s, my dad and grandfather owned a sponge manufacturing business. When the prime rate went to about 20%, they were factoring their receivables and they lost their business. Those late high school and college years were pretty difficult from a financial perspective. I decided that I would make sure I always had something to fall back on.
After law school, I spent 18 months at Skadden and decided that being a lawyer wasn’t really what I wanted to do. I was more interested on the other side of the M&A transactions. So I decided to interview all over Wall Street, and I got a job at Goldman Sachs in 1992 that was paying me half the amount of money I’d been making, but it was very entrepreneurial. The directive was, ‘Go out and build an asset management business within the umbrella of Goldman Sachs,’ and that was very appealing to me. I was handed a very large telephone and even larger computer and told to go build a business. I just started dialing to bring in clients, and also reading and learning from others at Goldman about everything I could. I was very fortunate, because I joined a [Goldman] team with two other guys that had been there for over a decade. I was able to join as the younger person and learn. We quickly became much more experienced in managing assets. And we had the ability to leverage all the Goldman research. You were really able to immerse yourself.
Forbes: You cofounded EnTrust in 1997 and grew it steadily during the 2000s. What were the secrets to your success?
Gregg Hymowitz: This business–the high-net-worth and institutional business–is all about trust. We’d say, and I still say to this day, ‘Never ask an asset manager what they like, ask them what they own.’ I’m kind of old school in that way: I only invest my money, my personal capital, in the same investment strategies and products we offer our investors. I think it’s very easy for managers to tell people what they like, but telling someone what they like is not as important as being aligned.”
Over the years, EnTrust has really evolved. In the 1990s, we started off investing in individual equities and building municipal bond portfolios for individuals. Then between 2002 and 2017, we started investing in a lot of hedge funds for institutional investors: your traditional fund-of-fund model, and we did that for many years. In addition, during the 2007-2008 credit crisis, we also started investing in single-idea investments from dislocations. So that was a big evolution of the business, and that’s when we really started doing these co-investments, which no one had ever really done in the hedge fund world before; they had only been a private equity phenomenon. We put probably close to $14 billion of capital to work on individual investment ideas based on dislocations.
One of the big sayings I live by is, ‘Evolve or Evaporate.’ I had an accidental lunch once with Usher, and Usher told me this whole theory about how in the entertainment business, you either evolve or evaporate. I’ve taken that accidental lunch and slogan to heart throughout my investment career.”
Forbes: What was EnTrust’s first co-investment, and how did that contribute to your firm’s evolution?
Gregg Hymowitz: One of our first co-investments was in the sovereign defaulted bonds of Argentina. (TK on who the co-investment partner was.) Back then in 2007 and 2008, a lot of the co-investments were credit related. When credit broke, there were a lot of interesting opportunities coming out of that dislocation. Then there was a period of time where we did a lot of activist equity investing, so we would partner with a number of activist managers and allocate capital to ideas where we partnered with a manager, typically a hedge fund manager, where we would take a position in a company and create an event, whether it be management change, spinning off a business, restructuring the business, changing out the board, et cetera. We did a decade or so of those types of investments.
Worst case, if the ship owner doesn’t pay, you restructure loans… Absolute worst case, you melt it down and get the value of the scrap steel.
Then about seven years ago, we were able to identify one of the most significant dislocations I’ve seen in my career, a very unique dislocation: Maritime finance. Basically, you had a lot of traditional lenders who would lend to mid-sized ship owners – folks who operate container ships, dry bulk ships, and tankers – but the financing for this industry kind of evaporated. We saw this big dislocation, so we went out to fill that void and brought in a team of really specialized experts in the field and built what’s probably the leading private lender to the maritime space. It’s about a $4 billion business today.”
Forbes: Tell me more about this maritime business. How did you identify it and why are you so bullish?
Gregg Hymowitz: If you think about entering the strategy, you have to have an unbelievable amount of specialization. Our 17-person team are all folks that were brought up in the maritime industry. And the reason why that’s so important is because in the credit businesses, sourcing the opportunities are key. Unlike public equities, if you want to be in the business of lending to businesses, you have to be able to source those opportunities. So it has this whole notion of high barriers to entry. You have very limited competition, because again, it requires unbelievable amounts of specialization.
From an investment perspective, it fits the dislocation opportunity. Over the last 15 years, traditional lenders have gotten out of lending to small and mid sized companies in the maritime industry. Obviously, this can be extrapolated to the whole boom in private credit. In maritime, a lot of financial institutions suffered losses because their lending standards were sloppy. They were lending at peaks as opposed to lending when asset values were low, and they got themselves into trouble. So we identified this opportunity, found the right person to build a business around, and went out and explained to our institutional investors that we’re able to lend at 12% to 14% interest, senior-secured debt at the top of the capital structure, collateralized by hard assets, and you’re able to lend at 60 to 70% loan to value. Worst case, if the ship owner doesn’t pay you, you’re able to go out there and restructure loans, or you can take back the collateral and sell it or lease it. Absolute worst case, you could always take the collateral and melt it down and get the value of the scrap steel.
Forbes: What is one investment you’re especially proud of?
Gregg Hymowitz: One investment that is typical of us is SeaWorld (PRKS). A guy named Scott Ross, who runs a fund called Hill Path Capital, brought us the idea in 2016. We were not invested with Scott in his main fund, but the industry has evolved a lot in the sense that when we first started, we typically dealt with guys that we were already investing in their funds and they would bring us ideas that they needed additional capital for. But as our co-investment business got bigger, we would have inbound calls and other ways of sourcing opportunities. We probably invested $100 million in the initial position in 2017. The idea was to basically take a position in SeaWorld [which was recently renamed as United Parks & Resorts] and really try to fix the business. If you remember, there was that movie out about how SeaWorld was conducting themselves vis-a-vis the orcas, and there was a lot of negative publicity at the time. So we thought there was an interesting opportunity to go in there and fix the business, help management or possibly replace management, and clean up the business.
What ultimately created opportunity for us was Covid—when everything shut down. Back then, if you owned any company where more than two people had to get together to conduct business, you had a problem. And obviously, SeaWorld traded down demonstrably; all those stocks got hammered; and so we bought a lot of stock when it got really nasty. Having a seat at the table, we were able to make sure that management was doing the right things: [taking] a white-board approach on costs, making sure the right capital structure was in place, and figuring out how long the company would survive depending on how long we’d all be locked down for. Unlike a lot of other businesses, this business still required a lot of capital on a monthly basis, because you still had to take care of all the animals. And everyone was using draconian assumptions, like what if no one got together for a year? What if no one got together for two years? How would this business operate? We did some very hard, but very quick analysis of what the business would look like, and also a liquidation analysis: What’s the real estate worth? What’s the brand worth? Literally, what are the animals worth?
That’s been a great investment, not just in returns, but because it encapsulates so many of the things we look for: management change, dislocation, value protection, focus on cost, making sure you have the right capital structure in place, and at the end of the day, you had to have a little courage or conviction that one day, we would all gather again.”
Even John Bogle, the father of indexing, once said that indexing will get to a tipping point one day.
Forbes: Any other current stocks you own that you want to call out?
Gregg Hymowitz: We’ve owned a very significant position for a long time in Deutsche Bank (DB). We started buying this position about five years ago, and the stock has basically been flat. But five years ago, I said to the Wall Street Journal, ‘All this company needs to do is not be mediocre anymore, and if they can get out of mediocrity, this is going to be a great business again.’ Five years later, with new management and a new CEO who’s done a fantastic job, the business is no longer mediocre. But the Street isn’t convinced by the story yet. No matter how much the metrics have changed, Deutsche Bank still has the reputation of the old Deutsche Bank—you know, the troubled Deutsche Bank. Now, it’s taken literally five years to put this company on a much more stable path. My sense is that, ultimately this investment will work in spades, but it’s taking much longer.”
Forbes: Now let’s look at the other end of the spectrum: What investment was one of your biggest disappointments?
Gregg Hymowitz: I remember once reading a quote I kept on my desk from Ty Cobb, the old Detroit Tiger. He was the greatest base stealer of all time, but he was only safe one third of the time. It’s like investing, which is a very humbling business. You make lots of mistakes in investing. The key is trying to minimize the mistakes.
The most recent mistake we made was probably an investment in Quibi [the mobile streaming platform that raised $1.75 billion in financing and shut down in less than one year.] We were an early investor in Quibi, along with a number of institutions. I got to know Jeffrey Katzenberg and Meg Whitman pretty well. The business was built on the concept, pre-Covid, that the world was operating at 110 miles per hour. People were rushing everywhere [and] lived on their phones, and the idea was you’d be commuting, and you’re standing in line at Starbucks and you’d watch a six minute high-quality, short-form story and TV series, like 7 minutes per episode. Then obviously Covid hit and no one was rushing to go anywhere. In fact, at the very beginning of Covid, everyone was sitting on their couches binging everything. No one was looking at their phones to watch short-form videos.
So Covid dealt a blow to the business, but I think also more importantly, one of the things that [we] vastly underestimated was that changing people’s way of operating is no easy task. It made all the sense in the world when you were watching the technology, viewing the technology, [but] I think we underestimated how difficult a transition that would be. The lesson learned is that no matter how talented a management team may be in a previous career, that doesn’t necessarily mean that when they attempt new ventures, they’re going to be as successful. I also have a new appreciation for how difficult it is to invest in paradigm shifting businesses. It’s very, very difficult. Watching the company grow and spending a lot of time on the technology, [we were] too optimistic. That was a painful, painful mistake.”
Forbes: How much did you invest in Quibi?
Hymowitz: In excess of $100 million.”
Forbes: You’ve worked with lots of big-name investors on co-investment deals. Who have you learned from in the industry? And who do you look up to?
Hymowitz: Everyone says this, but one of the things I’ve always loved reading is Warren Buffett’s annual letter. I think the best investors – particularly those in the areas that I focus on, which is more traditional, value-oriented investing – have been folks who see things clearly. Peter Lynch always had that famous saying: ‘You shouldn’t invest in anything you couldn’t explain to a seven year old.’ Anyone, no matter what their education level is, can sit down and read Warren Buffett’s year-end letters, right? They are just common-sense.
One of the folks I partnered with in probably five or six deals on the activist side is Nelson Peltz. I’ve known Nelson now for well over a decade, and we’ve done a number of transactions together. For his approach to investing, he likes to say: ‘Revenues up expenses down; what’s my margins? What’s my cash flow? How levered is the balance sheet?’ It’s that approach to investing – not overcomplicating things, making sure management and shareholders are aligned – that I gravitate to and try to emulate.”
Forbes: What are some of the biggest risks, from a macro perspective or investment strategy standpoint, that keep you up at night?
Gregg Hymowitz: There’s a number of them. One is indexing. Even John Bogle, the father of indexing, once said that indexing will get to a tipping point one day. No one knows when that tipping point is, but by definition, the more money that goes into index funds, there’s less money setting prices. And markets need for there to be price setters, meaning people figuring out through their investing what the value of a security should be. At what point do you reach a tipping point where there’s too few price setters, and what happens then? I could imagine a situation – and you’re going to need an event to cause this – where something happens and people wake up and say, ‘Why do I own these indexes?’ and there’s a mad rush out the door. It’s also a little bit of a vicious cycle: More money comes in, the stocks go up, more money comes in, the stocks go up, and it just keeps going and going and going. I just believe at some point it ends in a very scary moment.
Two, the amount of leverage in the system is always concerning. We’ve been talking about a distressed cycle now for probably ten years, and you just get the Fed lowering rates, companies refinancing, private equity recapitalizing and paying out their investors even more distributions, then interest rates go higher, and then the Fed pulls back, and it just keeps going on and on. I’ve always remained massively underleveraged, probably because of my childhood, growing up and seeing what happens when people are leveraged and it doesn’t work right. I have always said about leverage, ‘It’s great when it works. When it doesn’t work, it kills you.’ So the amount of leverage in the system is something that should be very concerning to people.”
Forbes: If you could go back in time and give yourself advice at the beginning of your investment career, what would that advice be?
Gregg Hymowitz: People always asked me today, ‘Should I go to law school [or] should I go to business school?’ I’m a huge proponent of law school, because everyday in my business, whether it’s managing EnTrust or doing the investing, everything you touch is always about reading a contract, reading an agreement, understanding how agreements work. That old saying, ‘think like a lawyer,’ is vital.
One thing though I wish I had done early on in my career is take more accounting classes. I think there’s so much about investing today that is accounting driven. Being able to read financial statements and understand them is crucial. I also would have taken more tax classes. So much of what we do, as a business and investors, is tax driven. So those are two things that I think are super vital for investors starting their careers.”
Forbes: Are there any books you recommend every investor read?
Gregg Hymowitz: There’s a book out there from 2004 called Blue Ocean Strategy. It’s a famous business book and it’s about trying to find investments, or businesses, that focus in markets that are differentiated, and value additive, and where you are competing on quality, or differentiation or value-add, rather than competing on price. So there’s red oceans and blue oceans. Red oceans are commoditized, not differentiated, and competing on price. Blue oceans are market differentiated, where you don’t need to compete on price. So I’ve always geared the EnTrust business and the strategies we like to invest in to those types of strategies, those blue ocean strategies. In fact, our maritime business is actually called Blue Ocean Strategy: because it’s a business operating in the ocean, and because it’s a differentiated strategy.”
