David Hendler is back, and ready to deploy old-school risk analysis on the fixed-income world of 2015.
Following a 12-year tenure at CreditSights, where he gained prominence analyzing the risk of financial firms through the global financial crisis of 2008-2009, Hendler has launched Viola Risk Advisors, whose stated mission is to provide risk advisory on global companies, for global companies.
“We see a need in the market to go back to basics -- do your credit homework, and do it right,” Hendler told Markets Media.
For Hendler, those basics were first inculcated as an entry-level credit analyst in the 1980s, after he put aside aspirations of becoming a dentist.
“Wall Street was in the first stages of becoming ‘electronified’, with Telerate machines where you could actually see the Treasury market and yield curve,” Hendler recalled. “I was the Lotus 1-2-3 expert at New York Life, a conservative, old-line insurance company. We were going from private placements and privately negotiated bond trading, to public bond markets.”
“I attribute a lot of my style and foundation credit perspective to New York Life,” he continued. “They used to say, ‘Treat the money you're investing as if it were your own.’ The other philosophy was that when somebody was trying to sell you a bond, the first inclination was to think that there had to be something wrong with that bond. So you had to be careful.”
Where securities analysts at sell-side banks tend to be cautious and overly optimistic about companies so as not to disturb banking relationships, Hendler is an independent analyst who’s known for not pulling punches. “Companies are always going to say why they're so great,” he said. “You as the analyst have to be skeptical and challenge them.”
Institutional bond markets continue to evolve, notably in terms of their ongoing ‘electronification’, and more recently with regulation constraining the big banks.
“The banking business has changed with the ‘Volcker Rule’, which says you really can’t do prop trading,” Hendler said. “You basically have to originate to distribute, then keep doing it. Banks like Credit Suisse, Goldman, and J.P. Morgan have great relationships, so they're well-positioned.”
Regarding the prevalence of screen-based activity, Hendler noted that times have changed from 30 years ago, when the tools of the analyst trade included 11-column accounting paper and green eye shades.
“Technological innovation continues to increase information, speed of trading, and the amounts of money that can be put to work,” Hendler said. “You can't fight that trend, but risks have to be managed and it has to be regulated.”
Viola, named after the country road on which Hendler resides in Rockland County, New York, provides holistic, enterprise-wide risk assessment, spanning credit, equity, and derivatives. “How do all the different stakeholders affect system stability and risk exposures?” Hendler said. “Understanding the interconnectedness is complex. A lot of it is nuance and narrative versus numbers, because humans are the basis for it all.”
For now, Viola is a six-person shop. Hendler recently hired 25-year industry veteran Winnie Cheng as head of financial services. With experience at Columbia Management, Bank of America, UBS, and the Federal Reserve Bank, Cheng brings a complementary buy-side background to the startup.
“We have a ton of experience working with investment managers, risk managers, counterparty credit risk, and enterprise risk, which includes operational risk,” Hendler said. “We think we have a better perspective because we have lived in the trenches of debt and equity analysis, trading and sales.”
Featured image via /Dollar Photo Club