WSO Podcast | E144: A 30 Year Career -- MD at Merrill, Credit Suisse Prop Desk + Starting his Own IB
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In this episode, Ken Margolis, Partner of Castle Placement walks us through his 30-year finance career. We learn how he quickly moved from Audit at Arthur Anderson back in the 80s to structured finance with Soloman Brothers as his first client, how Credit Suisse (then First Boston) made him an offer he couldn't refuse to jump ship, how he survived multiple crises and layoffs and why he ended up transitioning to Merrill in 1999. Listen to hear about his long successful run there, all of the different groups he worked in, what he liked best and why right before the great financial crisis he decided to leave and set up his own business.
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WSO Podcast (Episode 144) Transcript:
Patrick (CEO of WSO): [00:00:06] Hello and welcome. I'm Patrick Curtis, your host and chief monkey, and this is the Wall Street Oasis podcast. Join me! As I talked to some of the community's most successful and inspirational members to gain valuable insight into different career paths and life in general.Let's get to it. In this episode, Ken Margolis, partner of Castle Placement, walks us through his 30 year finance career. We learn how he quickly moved from audit at Arthur Andersen back in the eighties to structured finance with Salomon Brothers as his first client. How Credit Suisse, then first Boston, made him an offer he couldn't refuse to jump ship. How he survived multiple crises and layoffs. And why he ended up transitioning to Merrill in nineteen ninety nine.Listen to hear about his long, successful run there.All the different groups he worked in. What he liked best and why. Right before the Great Financial Crisis, he decided to leave and set up his own business. Enjoy. I can welcome to the Wall Street Voice podcast. Thank you. So it'd be great if you could just give the listeners a short summary of your bio.
Ken Margolis: [00:01:15] All right. My bio is very long because I'm very old, but I graduated from college in 1985. I went to the State University of New York at Albany out of school. I joined Arthur Andersen, which back then was a Big Eight accounting firm. Now there are no more big age to speak for. I worked there for six years. There is a manager. I did a variety of things, but rational going to that a little bit more. When I left Arthur Andersen, I went to what was then called first Boston Corporation, which then turned into Credit Suisse first Boston. There I ran the agency and and CMO new issuance test, and I was also a subsequently a prop trader of credit sensitive securities.
Patrick (CEO of WSO): [00:02:10] And then what? What securities?
Ken Margolis: [00:02:12] Credit sensitive securities? Yes. Okay. So these are asset backed securities, mortgage-backed securities, anything that had some something to do with credit associated with it.Yeah.Then in 2000, I joined Merrill Lynch at Merrill Lynch. I did a variety of things, including sales. Trading Banking eventually ran a group of about 100 people globally. And then in 2008, I started What is now today? Castle Placement, which is an investment bank. And that's kind of my bio.
Patrick (CEO of WSO): [00:02:49] Awesome. Really helpful to kind of frame everything. So let's go all the way back to SUNY. So when you were back there, were you thinking finances for me? I wonder I want to be an auditor. Like, what was the thought process? What was your family in the business? Was it just like, Hey, this is going to be really stable career or what?
Ken Margolis: [00:03:07] I'm not sure I had a great plan. I went to Albany. It was a very good school for accounting and I just fell into it,Really.My plan was to get into the big eight and really only stay there for two years and then go to law school.
Patrick (CEO of WSO): [00:03:27] Got it. So you thought law school litigating the JD was going to be potentially in your future practice law? The whole bit. Was there a reason for that family?
Ken Margolis:: [00:03:35] Yeah, my my mother always told me I should be a professional and to her profession, I was either a doctor, lawyer or accountant. So I figured I'd check off two of those boxes.
Patrick (CEO of WSO): [00:03:45] Is that does that kind of? Is that from her kind of background or like, is there a reason for that or is this they had heard it from somewhere?
Ken Margolis: [00:03:52] My mother and father were a product of the depression, and they always thought that you should have a stable job with a stable income and they always viewed professionals as having stable income.
Patrick (CEO of WSO): [00:04:05] Well, you kind of. So you you went through through a Sunni and you kind of went through the program to start recruiting for one of the big eight back then. And so you landed the job. Was it hard to get a job at Arthur Andersen back then was a competitive coming out of school. It was competitive. I did pretty well in school, so it was not an issue.I had offers from all the big eight accounting firms.Oh wow. So did you have like a ton of interviews, first round interviews and everything? And.
Ken Margolis: [00:04:31] Yes, I had actually 20 interviews and I had a little trouble for that because I wasn't supposed to apply to all of the accounting firms that were coming up to Albany. And my dean of my business school made me go on every single one of the interviews, despite having job offers.So. As punishment. But anyway,It worked out OK.
Patrick (CEO of WSO): [00:04:54] It worked out. It sounded like 20 jobs, 20 initial interviews.You landed eight offers.So clearly it was. You had good grades, I assume, and you were a good student.So you see you start there and you had a really good run at six years.
Ken Margolis: [00:05:08] So, yeah, it wasn't actually so great at first. Tell me a little bit about that. I did not like accounting. This is prior to Andersen Consulting or Accenture now. Back then it was accounting and MCD, which is really more of consulting, using more computers than management consulting. Yeah. And my first two years, I worked on very large, large audits and I did not like it and I was very happy to take in the LSAT supplied to law schools. I was ready to go and I went out for drinks with a partner and told him basically that I didn't like accounting and he wasn't surprised. And he said, But you know, I have this assignment or engagement going on down at Salomon Brothers. He's a big investment banker back then. That has nothing to do with accounting. It's more consulting. Maybe you like that? So. The partner asked you to do something you usually say, sure or whatever, you know. And I did that and it turned out I kind of backed my way into investment banking because of it. It was a a group of really young people right out of school that were working side by side with the Salomon Brothers fonts they call them that basically were doing all of the latest securitizations that were getting done. So back in the 80s, this was like 87 at this point. The first securitizations of asset classes started happening, and the Salomon Brothers was the biggest investment bank at the time that was involved in that.And they basically used Arthur andersen to help them with all those transactions. And what we would do is we would run in parallel.They would be the quants from Salomon Brothers would basically model the deals and then the young people from Arthur Andersen like me would model in parallel because I was pretty good back then and it was Lotus one two three. This was before excel and so on. And I also programmed in. See, I was able to do a pretty good job and I was. And before I
Patrick (CEO of WSO): [00:07:41] Know what did you love about about it was just much more challenging, much more intellectually stimulating or what what else?
Ken Margolis: [00:07:46] It was way more stimulating intellectually for me, the these transactions had never been done before in a lot of cases.
Patrick (CEO of WSO): [00:07:57] And can you give me one example of a type of deal that they were doing that that may nowadays be commonplace, but back then it was novel?
Ken Margolis: [00:08:05] Sure. The deals were basically taking, you know, portfolios of assets to launching them into securities and then issuing them. So you have to remember back then we did not have huge computer access. Pcs back then were very slow. So you needed to actually model them very quickly. And the typical deal would be anywhere between a few hundred million to a billion dollars, anywhere from one to 10 tranches.A variety of different structures and a lot of different asset classes backed by agency mortgages, credit cards, auto loans.
Patrick (CEO of WSO): [00:08:54] Can you give us a little peek into what what the difference is working in Lotus? Was it more like a terminal type interface? Was there any interface? Like what was it like, like dos? I remember dos back in the day, but like, what was it more like that in terms of like, obviously there's no spreadsheet, right?
Ken Margolis: [00:09:08] It was spreadsheet. It was similar to Excel. Ok. So and you would write macros similar to you would today in Excel if you wrote them, but it was much slower and you didn't have as much memory. In fact, when I first started, we didn't even have disk drives. We had what we refer to as four newly boxes,Which were big boxes that stored things and read every deal. We have this big box called a big box.You don't want to do it as basically having a hard disk is much better.
Patrick (CEO of WSO): [00:09:41] So you're so you're kind of you get a taste of what really structured finance right now. A little bit. A few years in. And so was that like once you started working on that, you said to the partner, This is what I want to do or how did you continue doing work? I assume you stayed there in that group for another four years.
Ken Margolis: [00:09:59] Yes, exactly. So I stay there and I eventually managed the group and we had about 25 people in the group at that point.
Patrick (CEO of WSO): [00:10:08] That's fast. You got promoted, you got promoted fast to manager then because you just were doing really well.
Ken Margolis:: [00:10:16] Doing really well, but also right time, right place, the engagement was one of the highest revenue engagements in Arthur Andersen
worldwide and effectively we had partners on the job who could. But the reality was a group of us that had started together were really running the group and they needed us
Patrick (CEO of WSO): [00:10:40] To stay. So they paid. So were their big bonuses associated for back then? Were there big bonuses? I know in audit or a big four, you don't think of big bonuses, but where was it just like big salary increases each year or something?
Ken Margolis: [00:10:51] Definitely not. My starting salary at Arthur Andersen was twenty one thousand five hundred dollars plus overtime. It's awesome. I'll never forget that. And when I got promoted to manager, I actually took a pay cut because I no longer had overtime. We were working 80 to 100 hours per week and overtime was huge. And then when I got promoted past promoted to manager, my salary compensation
actually went down.
Patrick (CEO of WSO): [00:11:19] What was your salary at that point? Like forty something fifty.
Ken Margolis: [00:11:21] I'm going to say it was probably around 60000.
Patrick (CEO of WSO): [00:11:24] Somewhere in your bonus gets eliminated y because you can't work.
Ken Margolis: [00:11:27] Those there were no bonuses. It was just back then you didn't have bonuses. It was just, you know, before you were manager, your salary plus overtime.
Patrick (CEO of WSO): [00:11:35] Got it. So you're once your manager. But the idea here is if you go manager, then you eventually can work your way up to senior manager and then partner. So what was your thought process? Are you thinking, I'm going to run this? I'm going to go all the way up to partner your first job out of school?
Ken Margolis: [00:11:52] Actually, a very great question, because I expanded the group to work with other investment banks besides Salomon Brothers. So we worked with everyone back then, from Drexel to Stanley, JP Morgan and first Boston.
Patrick (CEO of WSO): [00:12:10] So we're still doing those. Sorry to interrupt. Were you doing those sales? Were you going and pitching to like the group? But what you could do for them and like helping them set it up? So you were the one, you were the face? I was. That's awesome. Ok, so keep going.
Ken Margolis: [00:12:25] So while I was the face speaking, so when I first Boston, who ran a big group at first Boston, and she hired us.But he said, I have to ask you,Why are you at Arthur Andersen? It makes no sense. And what had happened was we had gotten a huge amount of experience because we did all of these cutting edge deals for all of these investment banks. We actually knew what other investment banks were doing. Other investment banks would want to know what they were doing. And I said to the person who is actually has his own hedge fund today, very well, no person. And I said, Well, you know, just got promoted to manager.I think I'll probably stay into partner. And he asked me what his partner make, and I told him,
Patrick (CEO of WSO): [00:13:15] What was that like? A hundred thousand something.
Ken Margolis: [00:13:17] So it was it was three hundred thousand, OK? And Arthur Andersen Partners did very well. Yeah. He said to me, Well, if you join first Boston, I'll pay you that now. So I said, Well,
Patrick (CEO of WSO): [00:13:37] This is 80, this is eighty seven or eighty eight at this point.
Ken Margolis: [00:13:39] No, no, this is necessary in 1990 somewhere around there.
Patrick (CEO of WSO): [00:13:43] So you've been promoted to manager, you're kind of running the deals you're going in.
Ken Margolis: [00:13:46] So I said to him, actually, I don't want to. This was like in October or something, and I said, I don't really want to wait a year and two months before I got paid all that money. He goes, No, no, that's what I'm going to pay you in December for two months. So. I was married at the time and I said. That's great. You know, I have to talk about it with my wife and he, like, looked at me and said, What's wrong with you? And I said, I still have to talk to her about it. So I went over to talk to you about it with my wife and my wife said, What's wrong with you? Why don't you just say yes? I think you're like, You're like,
Patrick (CEO of WSO): [00:14:27] You're like a deer in headlights. Kind of like, what did he just say to me completely?
Ken Margolis: [00:14:32] I never, ever thought coming from SUNY Albany, I would be making anywhere near that money.Better to do it that early than five years. And I went to work at first boston and,You know, worked out well.
Patrick (CEO of WSO): [00:14:46] And what was your what was your title? I guess when they brought you, it didn't matter. I mean, they're paying you well, but were you ahead of that?
Ken Margolis: [00:14:54] I was head of a new issuance desk agency and home loans. Hmos were anywhere between third and fifth, sometimes second in the league tables. We were issuing a huge amount of agency and alongside HMOs every year, so we had a structuring desk trading component of that. And that was the area initially that I was responsible.
Patrick (CEO of WSO): [00:15:20] So tell me how your time there because you were at first boston Credit suisse now for a good eight years. So tell me how your time there evolved, like you started out doing that stuff. But then, you know, I think you and then it's interesting. I've been through a lot of financial crises and
Ken Margolis: [00:15:37] This was really my second one. My first one really was back in 87 when I first had gotten when I was at Salomon Brothers. Working for Arthur Andersen in 1987 was Black Monday. And I saw that crash and I saw that it really influenced me because all these people, you know, very smart, well-paid people just got fired.and and I, you know, and we were standing there and we were thinking to ourselves, Well, that must be over for us as well. But because our area was hot, it was it. And that actually I learned that lesson early on. And the reason I say it is because in 1994, while I was head of that agency and hold on CMO desk, we had a crisis not as well known as other financial crises out there. But this one was a crisis with mortgage derivatives and often called David African crisis. But in any case, it took what was a really profitable area across all of Wall Street, and it made it not so profitable. And because of that,
Patrick (CEO of WSO): [00:16:53] The crisis itself. What was it? Can you explain it for the listeners? Just a little bit about like what made it a crisis? Just the pricing on all the mortgage or collateral backed securities suddenly tanked.
Ken Margolis: [00:17:04] Yeah. So it was interest rate sensitive product inverse floaters, iOS and POS were in the hands of a relatively few large investors. And the liquidity completely dried up. Interest rates had moved against them dramatically, and the securities that they owned became almost worthless. And investment banks had large positions of of these securities.At first wason,We actually did not. But it didn't matter because unless you make money on Wall Street,You know you're you're not going to get a big bonus.
Patrick (CEO of WSO): [00:17:48] Meaning you guys weren't exposed to the big downturn. You weren't. You didn't have these huge losses because you weren't holding the positions, but you still were that the business dried up because no one was taking on additional. Exactly.
Ken Margolis: [00:17:59] Ok. And because of that, they fired pretty much everybody on the trading floor. There were a few soul survivors and and they brought in a new head of mortgages, a very famous person. And you can't say much.You can't say who it is.I could say his name is Andy Stone. You ever read Liar's Poker? You know who Andy Stone is. In any case, he pretty much fired everyone. He interviewed you. And I remember him interviewing me. He basically called me into his office, and all he said to me was, You know, why should I keep you? And I said something like, because I'm, you know, structuring agency CMO. She goes, I structured agency quotes before you. He was at Salomon Brothers also. So you don't have to tell me what you do. I said, Why should I keep you? And then not to go into a whole long story about It, but basically. I told him that I thought I was good at relative value. He had a what was then a new-fangled bloomberg. He goes, Show me a bond that you think has value. Is that an interview? Yeah, I did. He's like, I think it's cheap.And then he said, Go buy something.I love it.
Patrick (CEO of WSO): [00:19:27] This is like a really nice man completely.
Ken Margolis: [00:19:31] The next day or two, he comes back out and he said. How did you buy? And like, none. And he's like, why not? And because I wasn't sure you were really serious. And he goes, Well, let me. Who are you in? Next time I tell you to do something and you don't do it? You'll find out how serious that. And so it turned out that it was a good lesson. I ended up buying a lot of those types of securities and others trading out of them, making a lot of money. And when it came time to basically firing people, I was one of the few people that fire.
Patrick (CEO of WSO): [00:20:11] How about how many people were cut
Speaker2: [00:20:12] Out of the pool?
Patrick (CEO of WSO): [00:20:13] How big was the desk at that point and when he came in? And then how?I would say probably the mortgage trading desks, probably
Ken Margolis: [00:20:21] 30 people and maybe five people realized, Wow,
Patrick (CEO of WSO): [00:20:25] Ok. Well, lucky you. Sounds like a real. Sounds like a real, real easy boss. So, but tell me
Ken Margolis: [00:20:33] Who he is. He's actually a great guy.
Patrick (CEO of WSO): [00:20:35] Yeah, no. I mean, sometimes Tough bosses can be good. But tell me a little bit about. Just the types of deals, so what what knowledge do you have? I mean, obviously all the structuring you had done in that in that kind of deer, in the headlights, I would if the guy immediately pulls up a Bloomberg and he's telling you, show me, show me what you would buy. You had just that experience like you. What came to your head, how did you even remember or think to a specific security? Like what did you?
Ken Margolis: [00:21:04] I had structured those securities and I knew they were trading cheap, so got it. Was it a huge stretch, from my perspective?
Patrick (CEO of WSO): [00:21:14] Got it. Ok, so you did a lot of that on the prop in a prop trading floor.
Ken Margolis: [00:21:20] But that was prior to the prop trading. So when he took over, he decided that he did not want to do all the mortgages, and he created a commercial real estate group as well as a prop trading group. He asked me to join the Prop Trading Group.
Patrick (CEO of WSO): [00:21:37] So tell me what that means, what if for the listeners listening, what, what, how did your day to day change?
Ken Margolis: [00:21:43] Delay was very different as opposed to issuing large, securitised transactions. I basically bought and sold them for the Book of Credit Suisse First Boston. So, so you
Patrick (CEO of WSO): [00:21:58] Your on Bloomberg all day. What are you? What are you doing to get the pricing and to analyze?
Ken Margolis: [00:22:03] No, there were. It was not flow securities. It was stuff that traded by appointment. So it was very illiquid credit sensitive securities that you had to really understand not only the structure associated with it, but also the credit of the assets that the underlying underlying those securities. Yeah.
Patrick (CEO of WSO): [00:22:26] So like what types of underlying assets were you trading it? So is it? Is it mostly mortgages or like?
Ken Margolis: [00:22:31] It was everything. It was everything from residential mortgages, commercial mortgages, credit cards, auto loans. It was all those things that I had actually worked on the structures for when I was at Arthur Andersen, I actually started trading those types of securities.
Patrick (CEO of WSO): [00:22:51] Did you feel like all the work prior was good training for that or did you feel
Ken Margolis: [00:22:54] Like it was? It was great training,
Great training and psychologically
Patrick (CEO of WSO): [00:22:58] Tell me about that at being a trader.
Ken Margolis: [00:23:00] Suddenly, you know, being a. Was it that much different than you had a pretty big risk position of running a new issuance test as well? But it was a different type of position.This was a much longer term old versus the agency.Cmo and CMO is where we would buy effectively a portfolio that day and securitize it in the afternoon and sell it in the next few days.Here we were. I was buying securities and holding them for anywhere from a few days to several months before trading out of them. So it's a different mentality.And so did
Patrick (CEO of WSO): [00:23:47] You feel like just tell me how things evolved? Were there? Was there ups like severe ups and downs? Or it sounded like you were doing a good job? It sounds like you were doing your job. I mean, you survived the first cuts and then did the group grow
Ken Margolis: [00:23:59] Once they put you in the next crisis? So the next crisis in the nineties, I'm thinking back in 1998. That was back when the emerging market Russian crisis happened. Junk bond crisis and part of the credit sensitive securities that we had included that and it did Affect the credit securities prices fairly dramatically. So the good news is we had traded out and we were fairly light at that point. We did have some securities that had Issues for sure,But we were We were pretty good at doing some crisis trading to trade out of those positions and to other positions that made money and overall net debt. We did well even during the crisis.But that being said, the market in general for commercial real estate, which was a bigger part of the group that I worked in, wasn't doing as well. And that meant the end of the script that I was in and that led me to go to Merrill Lynch.
Patrick (CEO of WSO): [00:25:13] Do you think that's common? Just whole groups get axed when there's Actually sub subgroups or sub little niches in there that that would be a benefit to keep.It is it is,Campbell, did they just chop off the the whole division that's not doing well when it could actually be the best time to be investing there?It's definitely common.A lot of instances it's senior people that are getting cut as opposed to junior people.It really depends. Some firms have a lot more stability than other firms over the years as well. But I definitely saw a lot of change of the guard throughout my years at the different investment banks.And that was your run there at.At first, Boston was eight years,So nine years. But yeah, or nine years ago to to ninety nine. And then that's when you jumped to Merrill.
Ken Margolis: [00:26:13] 2000, I think, but also somewhere in the range.
Patrick (CEO of WSO): [00:26:16] I'm looking at your LinkedIn, I'm cheating, but it said 99,
Ken Margolis: [00:26:20] Then you're probably you're probably right then.
Patrick (CEO of WSO): [00:26:21] Yeah, so so you're so you jumped to to Merrill. Tell me why Merrill? And was it just prompted simply by the cuts?
Ken Margolis: [00:26:31] I I saw the handwriting on the wall, and at that point, the group lasted another year after I left, but I thought that it was a good time to move and merrill was building up their group in credit trust. Your credit, structured finance. And they offered me a good position there, so I took it
Patrick (CEO of WSO): [00:26:58] As a prop trader. You're kind of now moving back to the structured structuring side. It was that the idea like, what's your thought process there? Because a lot of people, when they're thinking sales and trading or I want to go do prop trading. I think there's a there's a little bit of the sense on the in the community that that's going to you're not going to develop enough skills to fall back on. And like the investment banking background where you're doing M&A or something that gives it gives you a broader foundation. Would you agree with that or do you feel like? I mean, obviously, you're now kind of falling back on your structured, structured finance a little bit that jump.
Ken Margolis: [00:27:33] Yeah. You know, I think that. I think that the skills that you have can be applied to all sorts of different products. You know, there are people that stay within one product area and one discipline throughout their entire Career, but that's not common. I think most people, as they move up, they either do other things or they control groups that are banking, sales and trading as you get more senior anyway. And it just really depends on where you came from.
Patrick (CEO of WSO): [00:28:11] Yeah, so tell me about that transition specifically, you started interviewing, talking with people, how did that even work? You're so senior at that point you've done, you know, your manager at Arthur Henderson, you got brought over with the kind of big money offer they to get you over to first.Boston and you probably did really well there.You survived some big cuts and then jumping to with your next jump. What was the thought process of like what firm I go to? You wanted stability, maybe. But what else?
Ken Margolis: [00:28:41] I it had I didn't really interview I, one of the senior person at Merrill who covered me because I was covered by street when I was at Credit Suisse First Boston.You know, I told him what was going on. It was no secret. Everyone knew kind of what what was happening. And he asked me what my next move was, and I said, I don't know yet.He said, Well, why don't you think about Merrill?And I said, OK, what about Merrill? And we talked about it and came up with a role for me that I liked. And that was really it. There was no go to lots of different firms and interview or anything like that.
Patrick (CEO of WSO): [00:29:25] Do you feel like that was pretty common back then? It's just more like who you know, and just the relationships where you're picking up the phone and having those conversations.
Ken Margolis: [00:29:33] I don't think you send out your resume with jobs like that.Exactly.
Patrick (CEO of WSO): [00:29:39] So tell me how how it changed again yet again on you and what it was. Did it feel like you were going back to your previous role or your initial role at first?
Ken Margolis: [00:29:48] Yes, it definitely felt more like it was more of a new issuance type role of capital markets is really what I focused on. And there it was interesting because those securities that had all done poorly.You know, that was to a large degree what the area that I was going into structured credit and structured finance had experience.And because of that, there were so a lot of good opportunities in the market at that point. It was not good for the people that I, you know, obviously big losses. But for those people that have fresh capital, there were good opportunities and that's kind of what I try to work for.
Patrick (CEO of WSO): [00:30:34] And this was kind of a new, new initiative for Merrill. They didn't have these big losses.
Ken Margolis: [00:30:38] No, it was a Merrill had been in the business for many, many years.
Patrick (CEO of WSO): [00:30:42] So why did they, you know, if they had experienced those losses, why do they decide to kind of continue to invest and bring you in?
Ken Margolis: [00:30:48] And everyone, you know, everyone experienced losses over time. They weren't significant losses. It was just, you know, wasn't a great period for anyone in those areas. But the the area is, you know, today for me, you just have your ups and downs,
Patrick (CEO of WSO): [00:31:07] So you are eventually managing director at Merrill. Tell me a little bit about your progression there, because that was another long stint, you know, not a decade, but eight years. So it was, you know, I think in terms of people I've interviewed, you definitely have the longest stints, not just because you're old, but just it's rare to see six years, eight years old. I would just say it's even even for The even for the guest that that are in your age range. I've never seen such long stints like you've survived multiple cuts.You've, you know, the shortest stint was six years.Yeah, I know today, you know, I have my two daughters,
Ken Margolis: [00:31:47] You know, basically are out of college and I see them in their friends and they they move jobs very quickly. You know, I don't think it's a good idea. You know, that's it's definitely in vogue now and people do it. So obviously up to them. But I actually think that by staying at a firm for longer period of time, you increase the likelihood of advancing. I I think that there's a lot of. Fraternal type of chemistry that goes on there, and,You know, if you're one of those people that's been around for a long time and you get along with other senior people within the organization, you probably are going to move up as time goes on. You know, and I know that sometimes even back when I first started, you can always jump to another area and for more money and and promotion and and sometimes that works for people. Sometimes it didn't. For me, it didn't seem that smart unless I was really changing what I was doing and I couldn't have an opportunity within the firm itself. So that's kind of my thought pattern on it. But, you know, it worked for me anyway.
Patrick (CEO of WSO): [00:33:17] And so tell me about your your kind of your progression at Merrill. Was it all the same types of deals for eight years? You just grinding it out? Kind of thing?
Ken Margolis: [00:33:25] I did a lot of different things sales, trading and banking. And you know, I never done sales before and I actually loved it. Never thought I would like it, but I really did like it a lot.
Patrick (CEO of WSO): [00:33:40] And when you break down, like when you were doing sales, when you were doing trading, when you're doing banking and kind of.
Ken Margolis: [00:33:46] Sure. So you started off doing more capital Markets,Which is more marketing, going out to large investors and talking to them about different products that at Merrill, we had within structured finance and structured credit and then went into sales. And basically there I was selling,you know, I had my bunch of accounts that I covered And you know.You know what a salesperson does. The I think being a trader gave me an advantage as a salesperson as well as being a structure because I understood the different aspects of it and I could talk the language of anyone at it investor that we were speaking with. So that definitely helped and did very well as a salesperson and then got promoted to actually running a banking group that initially was raising capital for credit type companies. These were hedge funds and special purpose entities, et cetera,That called the Alternative Investment Group. And I ran that for a while and then eventually got promoted to a bigger group that Ran lots of different departments.
Patrick (CEO of WSO): [00:35:25] And so at one point you were you were had about 100 people under you at Merrill. Tell me a little bit about what what was the day to day like? How did that shift from when you were like on the ground doing the sales to going to the clients to I assume you were doing less of that by the time you were.
Ken Margolis: [00:35:41] Yes. Yes and no. You know, it was more of a managerial type
Role and also meeting with large investors and large companies that we were trying to get to hire us to raise capital for them. But it was definitely not on the day to day flow that you would be as a trader or a salesperson. That's a capital markets person.
Patrick (CEO of WSO): [00:36:08] So did you have a lot of problems with like personnel and turnover? Or are you like how? How was it? Did you have were you the person that had to fire people like?
Ken Margolis: [00:36:18] Hired people, fired people, yes, definitely. Yeah, I didn't really like that all that much. That part of it, the administrative aspect of it was not fun for sure, but it definitely had benefits as well.So all in all, it was a very good run. And.
Patrick (CEO of WSO): [00:36:41] As you're approaching twenty seven, what's the thought process of I'm going to go set up my own shop, what was how did you end up getting there and then tell me about your timing?
Ken Margolis: [00:36:52] Yeah. So 2007 is another crisis, another financial crisis. I thought that there would be a very good time to basically leave and start something else.
Patrick (CEO of WSO): [00:37:08] And did they slash like your entire group or what was the
Ken Margolis: [00:37:13] I mean, I left about a year before that actually Happened.
yeah, six months to a year. But eventually all groups in those areas got slashed. And yeah. Eventually came back, but I got slashed,but my thought process was, is that I saw the handwriting on the wall. I knew that there would be. It's like in all the past crisis opportunity. And I thought if I was ever going to leave and try and do something on my own.
Patrick (CEO of WSO): [00:37:48] So something kind of struck me is a few times you've seen the handwriting on the wall, is it obvious when you're in there to see the handwriting on the wall? Is it more just like rumor? Is it just the markets, the way they're behaving? What allows you to see that ahead of time? It sounds like twice you had jumped before, kind of. You know, shit hit the fan for a better expression.
Ken Margolis: [00:38:09] Yeah, you definitely when you're in the thick of it, you sometimes can't see the bigger picture. But, you know, I think it's always a good idea to think about where you're going with your career and what What opportunities are out there. So for me, I thought that this was just a good turning point where I could do something else and maybe do something on my own as opposed to working only at big firms.That's a that's
Patrick (CEO of WSO): [00:38:45] Surprising to me because from what I've seen, at least with this pandemic in the latest kind of crisis, I feel like people. Have been more hesitant to jump and kind of stuck around at the larger companies, the safety of that, you're going and say, No, I'm going to go be set up my own shop. What? What gave you the confidence? Maybe you didn't know the extent of the global financial crisis when you jumped or what it would be like. But tell me a little bit about the confidence you needed to have that this is the right time when you saw the writing on the wall.
Ken Margolis: [00:39:15] You never sure, I mean, I wasn't sure about it at all, but I thought that the there would be a big opportunity, as at this point the market had not completely crashed, it was having its ups and downs. But the handwriting was on the wall, so it would crash. And I thought at that point there would be some sort of opportunities to pick up securities cheap and do something associated with that, raise capital, do something that would make it. Opportunistic. So that I could take advantage of it.
Patrick (CEO of WSO): [00:39:56] So tell me as you approached that decision, how did you even prepare for it? Did you have like you had to get the legal documents and, you know, get get the. Well, the first thing is I had
Ken Margolis: [00:40:05] To leave Merrill Lynch. So you go on garden with you for a long period of time and non-compete, et cetera. And then once my Guarneri was up, what I started doing was consulting for large private equity firms that were either owned banks or that were in distress or owned other types of financial companies that were in distress or were being opportunistic and looking to buy those types of portfolios.
Patrick (CEO of WSO): [00:40:39] And and they needed somebody to tell them what's in this and how much is it really worth kind of thing?
Ken Margolis: [00:40:45] Yeah, especially you could, because there was no real market guidance, it was all over the map as to where where prices were and value was more something that you had to look down the road to see what was going to come back and what was not going to come back. Some stuff just became worthless. But there were some securities that were still out there and assets that had good value.
Patrick (CEO of WSO): [00:41:13] Tell me about, you know, a little bit about castle placement and how you so you're doing some consulting for how long was that a year, two years?
Ken Margolis: [00:41:21] It's about a year, year and a half, and we basically realize that as we were coming out of the financial crisis, my partner and I,We Knew that financial companies were going to need capital and we Actually raise capital during that period for a. Fairly well-known today, a firm that. You know, we said, wow, this is interesting because we really weren't thinking more about capital raising, we were thinking more about at that point consulting slash, hedge fund type of opportunities. But when we were able to raise
Patrick (CEO of WSO): [00:42:14] Meeting, raising your own fund.
Ken Margolis: [00:42:17] Yeah. Yeah. Or something to that effect. Yeah. And what ended up happening was we saw the capital raising was an interesting niche that no one was really doing or these types of companies. And we out of the gate in a very big capital raise. I made a lot of money and we said,Why don't we do mind sharing?
Patrick (CEO of WSO): [00:42:43] Do you mind sharing how much you made or arrange?
Ken Margolis: [00:42:46] I'm not going to do that, but it was great.And and what ended up happening is initially and this is what castle placement is today.we are an investment bank. We raised debt and equity for companies and funds were industry agnostic.our capital raises have ranged from as small as five million to as large as five hundred million. But our average capital raised about 100 million. And after 12 years, we've pretty much raised capital for every industry out there.
Patrick (CEO of WSO): [00:43:23] We have what's the most common. Is it more like the financial institution is your most common client or what's?
Ken Margolis: [00:43:30] Initially that was the case. And then we widened our breath. And today, financial institutions, real estate, technology,Energy are probably the top three that we work in. But we have absolutely raise capital for everything from farms, apparel companies, things that you wouldn't associate someone with my background. And the reason for that is because we hire bankers who have the expertise in those areas to affect corporations in those transactions.
Patrick (CEO of WSO): [00:44:12] And how do you feel like that initial large transactions kind of helped you just propelled you in terms of reputation and everything in terms of Bringing up other deals or what? I mean, what is what has allowed you to do this for over a decade successfully?
Ken Margolis: [00:44:26] Well, what's interesting is we've changed completely how we operate from when we first started. I would call us more an accidental fintech investment bank than anything.And when we first started,We did it the old fashioned way. We did it The way that we did it at Merrill lynch and first Boston. And which was basically we used our Rolodex of people that we knew to get assignments, and we use our Rolodex of investors to basically invest in those companies. As time went on, we realized quickly our niche was much bigger than what you would typically do at a large investment bank where you pretty much are dealing with large companies, multibillion dollar companies and very, very large institutional investors. Here are our focus is anywhere from early stage to lower middle market. There are over a million companies in the U.S. alone like that. And and as far as investors go, there's hundreds of thousands of institutional investors that we deal with, that invest in these things, and we realize quickly that we couldn't use a rolodex to basically cover all those companies and all those investors. So we invested heavily in data and technology so that today we have about four hundred and five hundred thousand companies in our database that we are constantly saying in front of new technology, social media, et cetera, talking to them about what's going on in their industry when they have capital raising needs, reaching out to them as well as investors. We have a 100000 investors in our database. We have very granular data on what each contact at that investor invests in so that when we get hired, we're not guessing who to go to. But by using a matching algorithm,
Patrick (CEO of WSO): [00:46:37] We effectively can go out
Ken Margolis: [00:46:40] To a large number of investors at the same time,Not be spamming the world to find an investor.And it's worked out really well. We've added a lot of technology associated with it. We've got apps. We've done a lot of different things
that I never thought that we would do as a investment bank. And large investment banks right now are not doing to make the capital raising process a lot more efficient.
Patrick (CEO of WSO): [00:47:10] Ask me about. Talk to me about your team, the size of your team and how many are like that developer kind of technical hires versus the pure investment bankers that are maybe once you find that kind of more niche group of investors?I assume they are picking up the phone at some point, right?
Ken Margolis: [00:47:28] Yeah, so sorry. We kind of think you need 50 50, so we think you need 50 percent great investment bankers and 50 percent great data and technology to actually raise capital for the market that we're in. We have 25 bankers.
They are all over the map on their backgrounds. Many are from large Wall Street firms, many are from large asset managers and many are from the corporate environment. They all the more senior bankers, you know,25 plus years experience doing this, and they can basically talk the language of any company that comes through the doors. When we had doors pre recorded through castle placement and we think that you need bankers to close deals because they're complicated and you can't just do it through data and technology on the data and technology side, we have a relatively small group that basically does it.focus of mine. My structuring background, I think a program definitely has helped, you know, especially in the beginning when it was just me that was doing it. But at the end of the day, what we've developed is a bunch of additions to the data, which is really, really important, very hard to maintain, very hard to clean and keep it going.But that data is extremely valuable that when you combine it with the technology that we created, it's a one two three punch with the investment bankers that we think gives us an advantage versus our competition.
Patrick (CEO of WSO): [00:49:20] It's exciting. Well, you know, you've been around for a good while doing well, so congrats on all the success. Thanks to you. Yeah, thank you. Tell me a little bit about. So before we before we call it any final words of wisdom specifically on just your path, looking back because, you know, you kind of had a few pivots here and there from structured, you know, from audit to structured finance then to eventually to to another firm than to the prop trading back to structured finance and now on your own. So there's there's been a. You definitely touched on a lot of different kind of functions. You've ran a large teams, you've been on the ground, you know, executing the trades.So any any words of wisdom to people who are interested in just the world of finance right now today.I'm not that comfortable doing words of wisdom, but I would say the one thing that I think you should always do is treat people
Ken Margolis: [00:50:16] That you, that work for you, that work with you and the work above you. Well, you know, I think looking back over the years, the best contacts that I I continue to use go back 20 plus years and some of them I worked for, some of them I worked with and some of them worked for me. Some of them who worked for me have gone on to do great, great things and it's amazing. And those are the best contacts that you'll have. You know, and and I would just say that as you're going through your career, you should keep your eye on that at all to make sure because you get lost sometimes, you know, in the nitty gritty of ealizing that we're all part of the same team and we help each other. It's not just today, it's tomorrow to.
Patrick (CEO of WSO): [00:51:17] I love it. Well, listen, Ken, thanks so much for taking the time and sharing your wisdom. Okay. Thank you. And thanks to you, my listeners at Wall Street, Oasis, if you have any suggestions whatsoever, please don't hesitate to send them my way. Patrick at Wall Street Oasis.And till next time.
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