The interview below is part of a series from the McGuireWoods Emerging Manager Program featuring impressive emerging managers. The McGuireWoods Emerging Manager Program supports emerging managers throughout the most critical stages of a fund’s evolution. It offers a differentiated and proprietary approach to connecting emerging managers with limited partners, providing intelligence on market terms and preferences, and advising emerging managers on all components of building a durable brand as an investor. To recommend an emerging manager for a future interview, email [email protected].
Q: What led to the decision to raise your initial fund? What were the indicators that you were ready?
Trey Ott: After 15 years at Susquehanna International Group (SIG), where I launched Susquehanna Structured Capital during my final five years, it became apparent that private credit and focus on small to medium-sized businesses was a burgeoning and enduring asset class with inherent structural inefficiencies that could be capitalized on.
I always have had an entrepreneurial bent, which SIG supported. As private credit was expanding, it felt like it was time to go out on my own.
The first person I approached to help me organize my thoughts on the strategy was very supportive, which I took as the best indicator in the market. This person was a successful investor and entrepreneur who believed that a niche direct lending strategy would be well accepted if it were structured appropriately. Shortly thereafter, that individual committed over $30 million of capital and became a trusted adviser. Ninety days later we had started Matterhorn.
Internally, one of the biggest indicators was the support I received from my family. They knew this was something I wanted to do. After speaking to other potential limited partners, it became apparent that the time was right, given my background, career and supporters.
Q: How did you think about assembling your team?
TO: I have been a credit analyst for most of my career, so I can underwrite risk. What I needed was a team that covered my blind spots.
When our firm set out to hire a head of real estate, instead of a traditional real estate lender, we wanted someone who had considerable experience as a real estate developer and operator. Such an individual would not only give us insight during the sourcing and underwriting process, but also give us the ability immediately to take over an asset and complete, operate or sell, if need be. We needed to make sure we understood all the risks in a deal, from sourcing concrete to design. This background is invaluable.
Likewise, when we wanted to name a head of credit, we wanted someone who had experience on the operator’s side. We wanted someone who had worked in a stressed company and understood how management teams act when they hit a bump in their business plans, who had figured out how to make payroll by accelerating receivables and delaying payables. Having that experience provides insight into how operators think and how they act. You can’t get that from being a traditional lender in a benign credit market.
As to how we wanted to represent our firm to investors and limited partners (LPs), we recognized that most LPs had an imposing group of options to invest their capital. I had to ensure that our reporting and back office were as strong as the larger players. We could never give the excuse that we didn’t have the reporting or transparency because we were new or small. That’s why we wanted a chief operating officer with significant experience on the allocator side. We wanted someone who had been on the receiving end of those reports and worked with and selected the right third parties to administer the fund and handle compliance and auditors.
Enhancing our collective drives all our hiring practices, regardless of level or expertise.
Q: What were your most important considerations when choosing LPs to pursue for partnership?
TO: The most important consideration was bringing in initial investors with whom our leadership had long-term relationships and who shared our long-term vision. We wanted to find groups that have mutual respect and trust in one another, especially in the early years. We prioritized identifying groups that were open to ongoing dialogue and have mutual transparency. The right LPs add fuel to the business just by being part of it. They offer best practice advice, insight into other ideas and a desire to work together to grow the fund and strategy.
Q: What did you prioritize when developing an investment strategy for your initial fund?
TO: Our team has prioritized getting paid a premium return for the risk, focus on downside protection, and maintain an unwavering discipline in the investment selection and underwriting process. These priorities are why we look at several types of opportunities in credit. I never want to be so laser-focused that I have a myopic view of the deals in front of me. I don’t want to have to select the best multi-family development deal when I could choose a corporate deal that is stronger. I never want to feel like we have to get a certain deal done even though the risk and return profile isn’t up to our standards.
Our fund may not always be a 50/50 split between real estate and corporate, but we will always look out for the best interests of our LPs and look to provide them with the best total return.
Q: What are some teachable moments you encountered along the way?
TO: It always takes longer than you expect, and there will be good and bad surprises along the way. I was naive to the difficulty of raising capital and bringing on the right team. It will be hard, and you will get more no’s than you ever expected, but believe in yourself and be willing to perform for all your stakeholders, whether they are LPs, employees, partners or your family. Your perseverance will be rewarded.
About Trey Ott
Trey Ott founded Matterhorn Capital and is responsible for the firm’s overall direction and strategy. As managing partner, he retains primary oversight for originating and structuring many of Matterhorn’s investments. With over 20 years of investment experience, Ott most recently held the position of managing director of Susquehanna Structured Capital, a strategy he founded at Susquehanna International Group (SIG) during his 15-year tenure with the firm. Prior to SIG, Ott held roles as the head of U.S. corporate research at Nomura Securities, and as a senior high yield research analyst at Conseco Capital Management and Delaware Investments (now Macquarie Investment Management).
Ott received an MBA from Cornell University’s Johnson School of Business and a bachelor of science degree, magna cum laude, in finance and economics from Indiana University of Pennsylvania.