00:09.120 --> 00:12.030 Johny Fernandez: Gunes Kulaligil is the co founder of Methodical 00:12.060 --> 00:15.390 Valuation and Advisory, this specialty finance, loan 00:15.390 --> 00:19.590 valuation and advisory company is based out of New York City. 00:19.720 --> 00:22.240 Gunes Kulaligil: So in 2018, we came together and started 00:22.240 --> 00:26.530 Methodical to provide valuation advisory work for our clients. 00:26.710 --> 00:29.140 And we wanted to do things a little differently. We wanted to 00:29.140 --> 00:31.750 use more technology, and we really wanted to focus on the 00:31.750 --> 00:35.410 assets that we know and specialize in. For us, those 00:35.410 --> 00:38.770 assets are secured and unsecured consumer loans and business 00:38.770 --> 00:41.950 loans and servicing rights that are related to these assets. So 00:41.950 --> 00:44.950 there's obviously a lot going on there. But for the most part, we 00:44.950 --> 00:48.760 really want to focus on more credit sensitive, esoteric and 00:48.760 --> 00:50.800 illiquid assets when we do valuations. 00:50.980 --> 00:53.500 Johny Fernandez: Kulaligil says business was booming. But his 00:53.500 --> 00:57.100 team quickly had to adjust when COVID-19 shut down New York 00:57.100 --> 00:57.490 City. 00:57.640 --> 01:01.690 Gunes Kulaligil: And when the pandemic hit in 2020. And 01:01.690 --> 01:05.140 obviously, I remember the day very clearly it was for us, when 01:05.140 --> 01:08.830 it hit us, it was March 22. It was a Sunday, because in our 01:08.830 --> 01:12.220 space, there is no trading in the weekends, it was a Sunday, 01:12.280 --> 01:15.520 even in the worst of times in 2008. And the great financial 01:15.520 --> 01:18.820 crisis, there was no trading on Sunday. So when we saw that 01:18.820 --> 01:21.790 trading happened on that Sunday, we knew something was off, 01:21.790 --> 01:25.300 right? Things changed for a lot of people from that point on to 01:25.300 --> 01:28.330 this day, things are getting back to normal. But in terms of 01:28.360 --> 01:31.630 how we were able to go about our business, as I mentioned, we 01:31.630 --> 01:34.840 don't operate in a vacuum, we have to work with our clients 01:34.840 --> 01:38.380 and their originators, their servicers and what have you. But 01:38.380 --> 01:41.440 I do think a lot of people adapted really well, I don't 01:41.440 --> 01:43.840 think we've experienced any major glitches. 01:43.870 --> 01:46.330 Johny Fernandez: He says, despite the adjustment business 01:46.330 --> 01:47.290 was so strong. 01:47.600 --> 01:49.880 Gunes Kulaligil: I will tell you, though, early on in the 01:49.880 --> 01:53.540 pandemic, call it early April, it was harder to do what we do 01:53.540 --> 01:56.570 because at the end of the day, we're providing valuations for 01:56.600 --> 01:59.660 illiquid esoteric hard to value assets, even in good times, 01:59.870 --> 02:03.170 right. But in March, April period, you're looking at a time 02:03.170 --> 02:06.050 when, as I mentioned before trading is happening on a 02:06.050 --> 02:10.130 Sunday. And that wasn't obviously by, by anybody's 02:10.130 --> 02:13.250 desire, because those accounts who are selling bonds on a 02:13.250 --> 02:17.150 Sunday actually got repo calls from their repo margin calls 02:17.150 --> 02:20.540 from their repo providers on Friday. So they had to, you 02:20.540 --> 02:24.680 know, have cash available on Monday. Right. So that was the 02:24.710 --> 02:27.770 that was the, the environment that we were operating in. And 02:27.770 --> 02:32.420 for us, it was hard to, you know, go to this usual sources 02:32.420 --> 02:34.910 when we're trying to come up with our assumptions and things 02:34.910 --> 02:38.120 like that, right. So for us that meant like picking up the call, 02:38.210 --> 02:41.090 or picking up the phone and calling your your clients, your 02:41.090 --> 02:43.640 colleagues, your competitors really try to figure out what's 02:43.640 --> 02:46.730 going on in the market. But I think we've adapted well, and a 02:46.730 --> 02:50.450 lot of our partners and clients have done so as well. So we have 02:50.450 --> 02:54.110 not experienced any problems with our valuations or being 02:54.110 --> 02:55.700 able to communicate with our clients. 02:55.970 --> 02:58.370 Johny Fernandez: Kulaligil says the valuation and advisory 02:58.370 --> 03:00.350 business had to adjust overall. 03:00.660 --> 03:03.540 Gunes Kulaligil: 2020 Actually, I think on earth it did a lot of 03:03.540 --> 03:08.400 things, right. So in the valuation business, for example, 03:08.430 --> 03:12.660 or for the work that we do, obviously, the when we value an 03:12.660 --> 03:16.140 asset that goes and becomes your net asset value if you're a 03:16.140 --> 03:19.290 hedge fund, and people go in and at that net, where it goes to 03:19.290 --> 03:23.130 your 10k. So these are obviously very important numbers that goes 03:23.130 --> 03:27.300 into your financials. They were free prior to the pandemic, 03:27.330 --> 03:30.120 everything was fine and dandy, right? I mean, assets were at 03:30.120 --> 03:32.640 par, there weren't a lot of losses, there weren't a lot of 03:32.640 --> 03:37.650 defaults. So you were okay using a generalist valuation provider 03:37.650 --> 03:40.740 who does anything and everything under the sun, right. But I do 03:40.740 --> 03:43.770 think throughout the pandemic, there was obviously a massive 03:43.770 --> 03:46.530 dislocation and a lot of the assets that we covered, what 03:46.530 --> 03:49.770 that meant was your general assumptions about the market as 03:49.770 --> 03:52.890 a generalist does not apply anymore, right. So you will have 03:52.890 --> 03:56.010 to work with a firm that specializes in the asset class 03:56.010 --> 04:00.060 that you cover, whether that's residential mortgages, on you 04:00.060 --> 04:03.780 know, unsecured consumer loans, private student loans, merchant 04:03.780 --> 04:06.930 cash advances, all these types of assets that we cover, you 04:06.960 --> 04:09.870 want to work with someone who is specialized in it. And 04:10.050 --> 04:12.630 throughout the pandemic, when these assets that used to be at 04:12.630 --> 04:16.710 par when they went down to 67 cents on the dollar it on Earth 04:16.710 --> 04:19.800 had a lot of issues where some of the providers were really 04:19.800 --> 04:24.330 just looking at from a very generalist perspective and 04:24.330 --> 04:27.900 didn't really have the the market color or the experience 04:27.900 --> 04:30.570 in the space to be able to, you know, provide meaningful 04:30.960 --> 04:32.880 valuations for these esoteric assets. 04:33.060 --> 04:35.670 Johny Fernandez: One lesson he learned is that diversity of 04:35.670 --> 04:37.980 funding sources and data is key. 04:37.980 --> 04:39.278 Gunes Kulaligil: The first lesson learned is really just 04:39.336 --> 04:42.666 diversify your funding sources. I think the second lesson 04:42.724 --> 04:46.404 learned is there was a there was a period where we couldn't get 04:46.463 --> 04:49.968 any data from any meaningful data from remittance reports of 04:50.026 --> 04:53.706 securitizations, or even maybe from some of the financials from 04:53.765 --> 04:57.094 some of the portfolio's that we'll look at right. I think 04:57.153 --> 05:00.774 when you go through some of that environment, it made it a lot 05:00.833 --> 05:04.279 more important for people to look at alternative data. What 05:04.338 --> 05:07.667 else can I find out about this borrower or this portfolio 05:07.726 --> 05:11.289 instead of just waiting for my remittance report, which comes 05:11.347 --> 05:14.852 out on the 25th of the of the month, and it talks about what 05:14.911 --> 05:18.299 happened the month before. So that's really old data, when 05:18.357 --> 05:21.804 things are moving fast, in a pandemic, you just didn't have 05:21.862 --> 05:25.659 time to wait for that. Right. So I think that's the second thing, 05:25.717 --> 05:28.930 really the importance of alternative data. And finally, 05:28.989 --> 05:32.318 ESG, there's a ton of activity going on in the ESG space. 05:32.377 --> 05:35.998 Whether you're a small business lender or a unsecured consumer 05:36.057 --> 05:39.679 lender, or student loan lender, mortgage lender, you will deal 05:39.737 --> 05:43.476 with ESG, if you haven't done so already, and I don't think deal 05:43.534 --> 05:46.980 dealing with ESG is the right word it's really something to 05:47.039 --> 05:50.719 embrace. Because I think there's a special instruction products 05:50.777 --> 05:54.341 in what we do, there's a good amount of environmental, social 05:54.399 --> 05:57.554 and governance work that is being done. But that's not 05:57.612 --> 06:01.058 really being accounted for. There's not a lot of firms that 06:01.117 --> 06:04.855 actually can help you scores. So that's actually one thing we're 06:04.914 --> 06:08.594 working on as well, for example, a recent securitization of non 06:08.652 --> 06:11.748 qualified mortgages, these mortgages, angellope yet a 06:11.807 --> 06:15.428 securitization that's, that's a public, you know, social bond. 06:15.487 --> 06:19.109 And, and, and it was a social bond, because the borrowers were 06:19.167 --> 06:22.613 self employed, small business owners for the most part, and 06:22.672 --> 06:26.002 they do not qualify for, you know, sort of certain agency 06:26.060 --> 06:29.273 underwriting, so they got a social bond designation for 06:29.331 --> 06:32.778 that. So that goes for some of the small business owners as 06:32.836 --> 06:36.166 well. I mean, I know a lot of your deBanked followers are 06:36.224 --> 06:40.021 small business funders investors in that, I mean, I think there's 06:40.079 --> 06:43.760 a lot of a lot of work to to be done just to recognize the some 06:43.818 --> 06:47.381 of the good work that's being done, whether that's, you know, 06:47.440 --> 06:49.660 small business or marketplace lending. 06:49.900 --> 06:51.790 Johny Fernandez: As for his employees heading back to the 06:51.790 --> 06:55.210 office, Kulaligil shared with me, his goal is to get things 06:55.210 --> 06:57.130 back to normal by the end of the year. 06:57.240 --> 06:59.790 Gunes Kulaligil: And even when we look into the office 06:59.790 --> 07:03.990 occupancy rates these days in New York City, it's about 20%, 07:04.020 --> 07:07.950 full occupancy would be called about 90% or so right? So we're 07:07.950 --> 07:12.540 still not back. But that 20% that's in the office, having 07:12.540 --> 07:15.780 visited bunch of friends and colleagues and clients in these 07:16.470 --> 07:20.730 Park Avenue buildings. In the last few weeks, I've noticed 07:20.730 --> 07:23.730 there's a lot of senior folks, I mean, you got senior managing 07:23.730 --> 07:25.710 directors, managing directors, and then you got a lot of 07:25.710 --> 07:28.800 analysts, right. So the middle of the pack isn't here yet. So I 07:28.800 --> 07:31.410 think that's the crowd, that's going to be a little harder to 07:31.560 --> 07:34.740 bring back to the office. But frankly, what's going on, I 07:34.740 --> 07:38.250 think it's just a psychological, hey, I'll get back to work after 07:38.250 --> 07:41.610 Labor Day type of mentality going on here. A lot of people 07:41.610 --> 07:45.570 are planning their three week Island vacations, you know, and 07:45.570 --> 07:48.420 then you're telling me to come back to work and in July, so, 07:48.570 --> 07:51.300 but I do think a lot of people will get back to work, having 07:51.300 --> 07:54.300 said that a lot of things have changed forever, right? I mean, 07:54.420 --> 07:58.350 bunch of bunch of folks will be working from home forever. So 07:58.470 --> 08:01.950 again, I think there's no one size fits all for us, we were 08:01.950 --> 08:06.570 able to adapt very well to working from home. But I do 08:06.570 --> 08:09.660 think there's really nothing better than one on one 08:09.660 --> 08:12.960 interaction with a with a colleague, or with a client. So 08:13.080 --> 08:17.700 I do expect, you know, to expect to return to some some form of 08:17.700 --> 08:19.500 normalcy by by the end of the fall. 08:19.860 --> 08:22.500 Johny Fernandez: And for his future goals. He says he plans 08:22.500 --> 08:23.520 to continue growing. 08:23.840 --> 08:27.320 Gunes Kulaligil: So looking forward, we absolutely think the 08:27.350 --> 08:31.160 Fintech specialty lending market to get even bigger, I think the 08:31.160 --> 08:35.330 non bank lenders are gonna be a bigger force in any form of 08:35.330 --> 08:39.050 lending, that goes for residential, small business and 08:39.230 --> 08:42.410 unsecured consumer loans. So those are the types of assets 08:42.410 --> 08:46.520 that we specialize in valuing. So I do see a good, good, good 08:46.520 --> 08:50.660 future from that perspective. I will also say valuations are 08:50.660 --> 08:54.050 used, obviously, for financial reporting purposes. But we also 08:54.050 --> 08:59.030 work on transactions, IE, when a client wants to buy a portfolio, 08:59.030 --> 09:03.800 sell a portfolio of whole loans, or, or finance it somehow, that 09:03.800 --> 09:06.380 also needs valuation. Right? So there's a transaction side of 09:06.380 --> 09:09.260 it, as I and as I mentioned before, there's a ton of 09:09.260 --> 09:12.110 transactions going on. So that's another thing that's keeping us 09:12.110 --> 09:12.500 busy. 09:12.990 --> 09:15.330 Johny Fernandez: And his advice to employees in the business is 09:15.330 --> 09:17.130 simple, show up to work. 09:17.130 --> 09:19.610 Gunes Kulaligil: So I'd say go to the office as much as you can 09:19.610 --> 09:22.610 and meet your colleagues and try to get in there. Right. I think 09:22.610 --> 09:25.430 that's very important. I mean, I grew up in trading floors in 09:25.430 --> 09:29.750 large, you know, large, large offices. So I can't, you know, 09:29.750 --> 09:32.930 there's nothing you can do. A lot of this is you can't just 09:32.930 --> 09:36.470 learn in school, right? I mean, if you ask me, how's the Penske 09:36.470 --> 09:40.490 account? If I look at you and say, there's so much there, 09:40.490 --> 09:43.070 right? You know exactly what I said. You're like ah, you know, 09:43.190 --> 09:45.830 don't worry about it, like we'll deal with it later. How do you 09:45.830 --> 09:48.950 say that in an email? You can't, you don't, right? So just to get 09:48.950 --> 09:51.620 these cues, it's just good to be in the office and understand 09:51.620 --> 09:52.670 what's really going on. 09:52.990 --> 09:55.360 Johny Fernandez: In Manhattan, I'm Johny Fernandez with 09:55.360 --> 09:56.290 deBanked News.