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Johny Fernandez: Gunes Kulaligil
is the co founder of Methodical

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Valuation and Advisory, this
specialty finance, loan

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valuation and advisory company
is based out of New York City.

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Gunes Kulaligil: So in 2018, we
came together and started

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Methodical to provide valuation
advisory work for our clients.

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And we wanted to do things a
little differently. We wanted to

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use more technology, and we
really wanted to focus on the

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assets that we know and
specialize in. For us, those

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assets are secured and unsecured
consumer loans and business

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loans and servicing rights that
are related to these assets. So

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there's obviously a lot going on
there. But for the most part, we

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really want to focus on more
credit sensitive, esoteric and

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illiquid assets when we do
valuations.

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Johny Fernandez: Kulaligil says
business was booming. But his

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team quickly had to adjust when
COVID-19 shut down New York

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City.

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Gunes Kulaligil: And when the
pandemic hit in 2020. And

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obviously, I remember the day
very clearly it was for us, when

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it hit us, it was March 22. It
was a Sunday, because in our

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space, there is no trading in
the weekends, it was a Sunday,

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even in the worst of times in
2008. And the great financial

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crisis, there was no trading on
Sunday. So when we saw that

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trading happened on that Sunday,
we knew something was off,

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right? Things changed for a lot
of people from that point on to

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this day, things are getting
back to normal. But in terms of

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how we were able to go about our
business, as I mentioned, we

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don't operate in a vacuum, we
have to work with our clients

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and their originators, their
servicers and what have you. But

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I do think a lot of people
adapted really well, I don't

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think we've experienced any
major glitches.

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Johny Fernandez: He says,
despite the adjustment business

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was so strong.

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Gunes Kulaligil: I will tell
you, though, early on in the

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pandemic, call it early April,
it was harder to do what we do

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because at the end of the day,
we're providing valuations for

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illiquid esoteric hard to value
assets, even in good times,

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right. But in March, April
period, you're looking at a time

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when, as I mentioned before
trading is happening on a

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Sunday. And that wasn't
obviously by, by anybody's

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desire, because those accounts
who are selling bonds on a

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Sunday actually got repo calls
from their repo margin calls

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from their repo providers on
Friday. So they had to, you

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know, have cash available on
Monday. Right. So that was the

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that was the, the environment
that we were operating in. And

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for us, it was hard to, you
know, go to this usual sources

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when we're trying to come up
with our assumptions and things

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like that, right. So for us that
meant like picking up the call,

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or picking up the phone and
calling your your clients, your

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colleagues, your competitors
really try to figure out what's

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going on in the market. But I
think we've adapted well, and a

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lot of our partners and clients
have done so as well. So we have

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not experienced any problems
with our valuations or being

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able to communicate with our
clients.

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Johny Fernandez: Kulaligil says
the valuation and advisory

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business had to adjust overall.

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Gunes Kulaligil: 2020 Actually,
I think on earth it did a lot of

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things, right. So in the
valuation business, for example,

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or for the work that we do,
obviously, the when we value an

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asset that goes and becomes your
net asset value if you're a

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hedge fund, and people go in and
at that net, where it goes to

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your 10k. So these are obviously
very important numbers that goes

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into your financials. They were
free prior to the pandemic,

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everything was fine and dandy,
right? I mean, assets were at

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par, there weren't a lot of
losses, there weren't a lot of

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defaults. So you were okay using
a generalist valuation provider

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who does anything and everything
under the sun, right. But I do

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think throughout the pandemic,
there was obviously a massive

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dislocation and a lot of the
assets that we covered, what

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that meant was your general
assumptions about the market as

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a generalist does not apply
anymore, right. So you will have

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to work with a firm that
specializes in the asset class

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that you cover, whether that's
residential mortgages, on you

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know, unsecured consumer loans,
private student loans, merchant

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cash advances, all these types
of assets that we cover, you

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want to work with someone who is
specialized in it. And

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throughout the pandemic, when
these assets that used to be at

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par when they went down to 67
cents on the dollar it on Earth

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had a lot of issues where some
of the providers were really

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just looking at from a very
generalist perspective and

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didn't really have the the
market color or the experience

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in the space to be able to, you
know, provide meaningful

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valuations for these esoteric
assets.

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Johny Fernandez: One lesson he
learned is that diversity of

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funding sources and data is key.

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Gunes Kulaligil: The first
lesson learned is really just

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diversify your funding sources.
I think the second lesson

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learned is there was a there was
a period where we couldn't get

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any data from any meaningful
data from remittance reports of

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securitizations, or even maybe
from some of the financials from

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some of the portfolio's that
we'll look at right. I think

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when you go through some of that
environment, it made it a lot

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more important for people to
look at alternative data. What

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else can I find out about this
borrower or this portfolio

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instead of just waiting for my
remittance report, which comes

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out on the 25th of the of the
month, and it talks about what

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happened the month before. So
that's really old data, when

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things are moving fast, in a
pandemic, you just didn't have

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time to wait for that. Right. So
I think that's the second thing,

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really the importance of
alternative data. And finally,

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ESG, there's a ton of activity
going on in the ESG space.

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Whether you're a small business
lender or a unsecured consumer

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lender, or student loan lender,
mortgage lender, you will deal

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with ESG, if you haven't done so
already, and I don't think deal

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dealing with ESG is the right
word it's really something to

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embrace. Because I think there's
a special instruction products

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in what we do, there's a good
amount of environmental, social

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and governance work that is
being done. But that's not

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really being accounted for.
There's not a lot of firms that

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actually can help you scores. So
that's actually one thing we're

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working on as well, for example,
a recent securitization of non

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qualified mortgages, these
mortgages, angellope yet a

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securitization that's, that's a
public, you know, social bond.

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And, and, and it was a social
bond, because the borrowers were

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self employed, small business
owners for the most part, and

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they do not qualify for, you
know, sort of certain agency

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underwriting, so they got a
social bond designation for

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that. So that goes for some of
the small business owners as

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well. I mean, I know a lot of
your deBanked followers are

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small business funders investors
in that, I mean, I think there's

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a lot of a lot of work to to be
done just to recognize the some

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of the good work that's being
done, whether that's, you know,

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small business or marketplace lending.

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Johny Fernandez: As for his
employees heading back to the

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office, Kulaligil shared with
me, his goal is to get things

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back to normal by the end of the
year.

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Gunes Kulaligil: And even when
we look into the office

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occupancy rates these days in
New York City, it's about 20%,

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full occupancy would be called
about 90% or so right? So we're

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still not back. But that 20%
that's in the office, having

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visited bunch of friends and
colleagues and clients in these

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Park Avenue buildings. In the
last few weeks, I've noticed

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there's a lot of senior folks, I
mean, you got senior managing

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directors, managing directors,
and then you got a lot of

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analysts, right. So the middle
of the pack isn't here yet. So I

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think that's the crowd, that's
going to be a little harder to

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bring back to the office. But
frankly, what's going on, I

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think it's just a psychological,
hey, I'll get back to work after

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Labor Day type of mentality
going on here. A lot of people

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are planning their three week
Island vacations, you know, and

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then you're telling me to come
back to work and in July, so,

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but I do think a lot of people
will get back to work, having

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said that a lot of things have
changed forever, right? I mean,

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bunch of bunch of folks will be
working from home forever. So

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again, I think there's no one
size fits all for us, we were

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able to adapt very well to
working from home. But I do

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think there's really nothing
better than one on one

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interaction with a with a
colleague, or with a client. So

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I do expect, you know, to expect
to return to some some form of

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normalcy by by the end of the
fall.

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Johny Fernandez: And for his
future goals. He says he plans

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to continue growing.

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Gunes Kulaligil: So looking
forward, we absolutely think the

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Fintech specialty lending market
to get even bigger, I think the

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non bank lenders are gonna be a
bigger force in any form of

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lending, that goes for
residential, small business and

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unsecured consumer loans. So
those are the types of assets

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that we specialize in valuing.
So I do see a good, good, good

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future from that perspective. I
will also say valuations are

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used, obviously, for financial
reporting purposes. But we also

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work on transactions, IE, when a
client wants to buy a portfolio,

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sell a portfolio of whole loans,
or, or finance it somehow, that

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also needs valuation. Right? So
there's a transaction side of

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it, as I and as I mentioned
before, there's a ton of

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transactions going on. So that's
another thing that's keeping us

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busy.

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Johny Fernandez: And his advice
to employees in the business is

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simple, show up to work.

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Gunes Kulaligil: So I'd say go
to the office as much as you can

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and meet your colleagues and try
to get in there. Right. I think

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that's very important. I mean, I
grew up in trading floors in

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large, you know, large, large
offices. So I can't, you know,

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there's nothing you can do. A
lot of this is you can't just

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learn in school, right? I mean,
if you ask me, how's the Penske

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account? If I look at you and
say, there's so much there,

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right? You know exactly what I
said. You're like ah, you know,

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don't worry about it, like we'll
deal with it later. How do you

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say that in an email? You can't,
you don't, right? So just to get

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these cues, it's just good to be
in the office and understand

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what's really going on.

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Johny Fernandez: In Manhattan,
I'm Johny Fernandez with

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deBanked News.