Johny Fernandez: Gunes Kulaligil is the co founder of Methodical
Valuation and Advisory, this specialty finance, loan
valuation and advisory company is based out of New York City.
Gunes Kulaligil: So in 2018, we came together and started
Methodical to provide valuation advisory work for our clients.
And we wanted to do things a little differently. We wanted to
use more technology, and we really wanted to focus on the
assets that we know and specialize in. For us, those
assets are secured and unsecured consumer loans and business
loans and servicing rights that are related to these assets. So
there's obviously a lot going on there. But for the most part, we
really want to focus on more credit sensitive, esoteric and
illiquid assets when we do valuations.
Johny Fernandez: Kulaligil says business was booming. But his
team quickly had to adjust when COVID-19 shut down New York
City.
Gunes Kulaligil: And when the pandemic hit in 2020. And
obviously, I remember the day very clearly it was for us, when
it hit us, it was March 22. It was a Sunday, because in our
space, there is no trading in the weekends, it was a Sunday,
even in the worst of times in 2008. And the great financial
crisis, there was no trading on Sunday. So when we saw that
trading happened on that Sunday, we knew something was off,
right? Things changed for a lot of people from that point on to
this day, things are getting back to normal. But in terms of
how we were able to go about our business, as I mentioned, we
don't operate in a vacuum, we have to work with our clients
and their originators, their servicers and what have you. But
I do think a lot of people adapted really well, I don't
think we've experienced any major glitches.
Johny Fernandez: He says, despite the adjustment business
was so strong.
Gunes Kulaligil: I will tell you, though, early on in the
pandemic, call it early April, it was harder to do what we do
because at the end of the day, we're providing valuations for
illiquid esoteric hard to value assets, even in good times,
right. But in March, April period, you're looking at a time
when, as I mentioned before trading is happening on a
Sunday. And that wasn't obviously by, by anybody's
desire, because those accounts who are selling bonds on a
Sunday actually got repo calls from their repo margin calls
from their repo providers on Friday. So they had to, you
know, have cash available on Monday. Right. So that was the
that was the, the environment that we were operating in. And
for us, it was hard to, you know, go to this usual sources
when we're trying to come up with our assumptions and things
like that, right. So for us that meant like picking up the call,
or picking up the phone and calling your your clients, your
colleagues, your competitors really try to figure out what's
going on in the market. But I think we've adapted well, and a
lot of our partners and clients have done so as well. So we have
not experienced any problems with our valuations or being
able to communicate with our clients.
Johny Fernandez: Kulaligil says the valuation and advisory
business had to adjust overall.
Gunes Kulaligil: 2020 Actually, I think on earth it did a lot of
things, right. So in the valuation business, for example,
or for the work that we do, obviously, the when we value an
asset that goes and becomes your net asset value if you're a
hedge fund, and people go in and at that net, where it goes to
your 10k. So these are obviously very important numbers that goes
into your financials. They were free prior to the pandemic,
everything was fine and dandy, right? I mean, assets were at
par, there weren't a lot of losses, there weren't a lot of
defaults. So you were okay using a generalist valuation provider
who does anything and everything under the sun, right. But I do
think throughout the pandemic, there was obviously a massive
dislocation and a lot of the assets that we covered, what
that meant was your general assumptions about the market as
a generalist does not apply anymore, right. So you will have
to work with a firm that specializes in the asset class
that you cover, whether that's residential mortgages, on you
know, unsecured consumer loans, private student loans, merchant
cash advances, all these types of assets that we cover, you
want to work with someone who is specialized in it. And
throughout the pandemic, when these assets that used to be at
par when they went down to 67 cents on the dollar it on Earth
had a lot of issues where some of the providers were really
just looking at from a very generalist perspective and
didn't really have the the market color or the experience
in the space to be able to, you know, provide meaningful
valuations for these esoteric assets.
Johny Fernandez: One lesson he learned is that diversity of
funding sources and data is key.
Gunes Kulaligil: The first lesson learned is really just
diversify your funding sources. I think the second lesson
learned is there was a there was a period where we couldn't get
any data from any meaningful data from remittance reports of
securitizations, or even maybe from some of the financials from
some of the portfolio's that we'll look at right. I think
when you go through some of that environment, it made it a lot
more important for people to look at alternative data. What
else can I find out about this borrower or this portfolio
instead of just waiting for my remittance report, which comes
out on the 25th of the of the month, and it talks about what
happened the month before. So that's really old data, when
things are moving fast, in a pandemic, you just didn't have
time to wait for that. Right. So I think that's the second thing,
really the importance of alternative data. And finally,
ESG, there's a ton of activity going on in the ESG space.
Whether you're a small business lender or a unsecured consumer
lender, or student loan lender, mortgage lender, you will deal
with ESG, if you haven't done so already, and I don't think deal
dealing with ESG is the right word it's really something to
embrace. Because I think there's a special instruction products
in what we do, there's a good amount of environmental, social
and governance work that is being done. But that's not
really being accounted for. There's not a lot of firms that
actually can help you scores. So that's actually one thing we're
working on as well, for example, a recent securitization of non
qualified mortgages, these mortgages, angellope yet a
securitization that's, that's a public, you know, social bond.
And, and, and it was a social bond, because the borrowers were
self employed, small business owners for the most part, and
they do not qualify for, you know, sort of certain agency
underwriting, so they got a social bond designation for
that. So that goes for some of the small business owners as
well. I mean, I know a lot of your deBanked followers are
small business funders investors in that, I mean, I think there's
a lot of a lot of work to to be done just to recognize the some
of the good work that's being done, whether that's, you know,
small business or marketplace lending.
Johny Fernandez: As for his employees heading back to the
office, Kulaligil shared with me, his goal is to get things
back to normal by the end of the year.
Gunes Kulaligil: And even when we look into the office
occupancy rates these days in New York City, it's about 20%,
full occupancy would be called about 90% or so right? So we're
still not back. But that 20% that's in the office, having
visited bunch of friends and colleagues and clients in these
Park Avenue buildings. In the last few weeks, I've noticed
there's a lot of senior folks, I mean, you got senior managing
directors, managing directors, and then you got a lot of
analysts, right. So the middle of the pack isn't here yet. So I
think that's the crowd, that's going to be a little harder to
bring back to the office. But frankly, what's going on, I
think it's just a psychological, hey, I'll get back to work after
Labor Day type of mentality going on here. A lot of people
are planning their three week Island vacations, you know, and
then you're telling me to come back to work and in July, so,
but I do think a lot of people will get back to work, having
said that a lot of things have changed forever, right? I mean,
bunch of bunch of folks will be working from home forever. So
again, I think there's no one size fits all for us, we were
able to adapt very well to working from home. But I do
think there's really nothing better than one on one
interaction with a with a colleague, or with a client. So
I do expect, you know, to expect to return to some some form of
normalcy by by the end of the fall.
Johny Fernandez: And for his future goals. He says he plans
to continue growing.
Gunes Kulaligil: So looking forward, we absolutely think the
Fintech specialty lending market to get even bigger, I think the
non bank lenders are gonna be a bigger force in any form of
lending, that goes for residential, small business and
unsecured consumer loans. So those are the types of assets
that we specialize in valuing. So I do see a good, good, good
future from that perspective. I will also say valuations are
used, obviously, for financial reporting purposes. But we also
work on transactions, IE, when a client wants to buy a portfolio,
sell a portfolio of whole loans, or, or finance it somehow, that
also needs valuation. Right? So there's a transaction side of
it, as I and as I mentioned before, there's a ton of
transactions going on. So that's another thing that's keeping us
busy.
Johny Fernandez: And his advice to employees in the business is
simple, show up to work.
Gunes Kulaligil: So I'd say go to the office as much as you can
and meet your colleagues and try to get in there. Right. I think
that's very important. I mean, I grew up in trading floors in
large, you know, large, large offices. So I can't, you know,
there's nothing you can do. A lot of this is you can't just
learn in school, right? I mean, if you ask me, how's the Penske
account? If I look at you and say, there's so much there,
right? You know exactly what I said. You're like ah, you know,
don't worry about it, like we'll deal with it later. How do you
say that in an email? You can't, you don't, right? So just to get
these cues, it's just good to be in the office and understand
what's really going on.
Johny Fernandez: In Manhattan, I'm Johny Fernandez with
deBanked News.