Chapter One: The Numbers

Chapter 01 – Project Granite

Project Granite.

The elevator jarred open. Fluorescent light knifed into my eyes. The bodega coffee from three subway stops ago had done nothing.

I was earlier to the office than usual, though the mid-20s front desk administrative assistant had been here for an hour already. She was suitably primped and proper in the generic corporate way. She smiled and said the appropriate salutations. I barely heard her words.

Project Granite.

My greeting back was a faint nod, my neck muscles too tight to fake anything better. She rose and started moving to the kitchen alcove on our floor. She knew what I needed before I did, and she knew me well enough not to be offended I hadn’t said anything back. I knew her well enough to know that she was secretly dating Rob - one of my warmer colleagues - whose Asset Management team sat two rows in front of mine.

As she disappeared towards the break-room area, I appreciated her small kindness that I knew would be coming my way shortly. She was good at her job and I started feeling slightly better than where I had begun my morning.

She knew that Rob had accompanied me out last night to a small dinner event hosted by one of our prime broker relationships last night. Sam enjoyed showing off her knowledge of Japanese whiskeys at expensive sushi restaurants to her clients, and Rob and I both enjoyed Sam’s bank picking up the tab. I used to wonder if Sam actually liked Japanese Whiskey or only picked it because it helped her in this male-dominated industry. Maybe that’s why she also went by Sam and not Samantha? I had ceased the burdensome pondering of such philosophical questions a few years ago - I no longer cared and simply accepted the invites when they came my way.

The action on the 21st floor was a right turn out of the elevator bank. Just beyond the next door was the familiar office plan mimicked in international banks and institutional funds everywhere. I strode through, badging my way at the security fob, and walked into a trading floor layout that ran the length of the building from north to south. When I started here seven years ago, fresh into my mid-20s, it was exciting. I felt the potential awash over me. A few promotions later, I now felt that half the floor watched me all day for signs of weakness, and the other half ignored me until they needed to butter me up for something. Which tactic felt worse to me… depended on the day.

Project Granite.

Today, at this early hour - the floor was only 20% full. Mostly consisted of developers in their southern corner of the floor plate, who I knew took the early train in from the suburbs, along with a couple young and hungry analysts that I knew lived a couple blocks away.

The rest of my ‘colleagues’ would filter in over the next 60 minutes.

My desk was in the row closest to the north wall where the managing directors had their offices with their nice views of 57th street and beyond. My views were more limited. On my left was an interior office wall that ran the length of the building. On my right was a blessed exterior wall with windows facing the rest of Manhattan, though it was several feet and desks to my right. Once, I saw that skyline from this office and felt like I’d made it. Now, the buildings just blurred together - glass, steel and too many hours inside of them.

I dropped into my chair, too hard, the shock rattling up my spine. Elbows hit the desk, fingers pressing into my temples. My eyes, unfocused, locked on the yellow Bloomberg keys at the top of my keyboard. Too bright. Too much. Too early.

If I stood up, I could see everyone else on the floor in one glance. For now, however, the 28 rows were mostly black screens and the dimness of the early hour outside made it feel darker. A TV was mounted to the ceiling every 4 rows, perpetually playing CNBC on mute.

The generically pretty front desk girl arrived at my seat with two mugs - one contained two tea bags with honey poured in for my throat, the other contained coffee brewed from the stale and over-roasted grounds that live in every coffee pod everywhere. I was grateful for both and smiled more warmly this time to her.

The cheap bodega coffee earlier had burned the roof of my mouth. I took a gulp of the hot liquid given to me, ignoring the burn. My stomach was already clenched tight, a dull ache I’d long stopped questioning.

Project Granite.

I hadn’t always sat in this row, closest to THE power of the office - the MD fiefdoms emanating from the north wall. It was exciting when I was first moved into their immediate proximity. The grateful result after years of choosing my nights and weekends to be focused on increasing AUM over any other alternative. My friends, family and wife would still be there for me, but opportunities and deals don’t exist near as long. I had been told at that time I was ‘promising’ and would be ‘entrusted’ with significant power and duties as Director of Acquisitions. I no longer remembered when the promises and trust started forming pits in my stomach.

I had come in early to prep for my scheduled 10am meeting with my boss, Brian - Senior Managing Director of Originations - on the development of the model I had been building that week. I had spent most of the previous weekend generating preliminary pricing and customary deck materials for a portfolio that had hit our inbox on Friday afternoon.

I hated sellers that sent materials on Friday afternoons. They know exactly what they’re doing. I know it. Everyone knows it.

This portfolio – like any deal that came our way – received an organizational name created internally that was always a Project + Noun.

This deal had been named Project Granite.

I had a small three-person team that reported to me. Two associates and one Junior Vice President, all humorously named Mike. Our group’s usual routine in such situations was the Mikes would divvy up parts of the deal and complete the foundational elements collectively. They would stand up the models, run the market analyses, knock out the first passes on the deck and put all the different pieces together that would later become a comprehensive multi-page memo for the Investment Committee to sign off on.

The Mikes, being well-trained 20-somethings with a few years under their belt already - were knowledgeable and helpful and proactive. I could trust them to run the traps, clean up data errors, compile the right supporting data, and run the usual mix of upside and downside cases. The Mikes would call me periodically with questions, circulate initial drafts and give the perfunctory check-ins to keep me apprised of their progress. I would then be well-armed to brief Senior MD Brian – our group head and a sitting member of the Investment Committee – and we would decide collectively where to sharpen the pencil on a deal, where to lean in, and where to be more conservative.

And what scenario we choose would be our Base Case, the almighty set of assumptions that generated The Price, upon which the IC would allow us to deploy millions of dollars.

However, this was not our usual deal profile. The numbers were solid - too solid. Almost like they’d been engineered for maximum palatability. The structure was complex, layered in a more deliberate way than the usual rote slicing and dicing we would see. As always, however, it was conveniently abstracted away and tailored for the suited and stimulated class on 21st floors everywhere, who all live and work far away from where the assets and the cashflows actually happen.

The Mikes were good earnest workers, and had sufficient reps themselves to be not-quite-green anymore… but this was a more interestingly complex structure and needed a fresh approach the team didn’t have. Yet.

So this week I had been building in more features to help us model the portfolio more robustly, which meant I had both good news and bad news on the pricing sensitivities for Senior MD Brian. I had to be careful with how I presented or else he’d bring in Jon to ‘help’ with how to think about ‘our’ assumptions.

Jon was aggressive and uncaring on deals. What he cared about was dressing sharply and working the internal relationships on the 21st floor even sharper. Myself and some of the other long-time colleagues knew Jon’s traits would eventually hit the P&L of the firm. Jon had openly admitted to me on a late night that taking big swings was the only way to get ahead. If a deal went bad? A smart ’player’ sees it coming, jumps firms, and lets someone else suffer having to write down returns and clean up what they can.

“Just leave it to your replacement to take the blame.”

I hated that mindset. Jon’s desk was down my row to the right and sat at the corner closest to the exterior window. One corporate title above mine, just enough to have the best seat by the window and lord it over me and everyone else on our row. We reported to different MDs, but that never stopped him from finding an angle. A favor. An offer delivered as a ‘this could be a great opportunity for you’ just so happened to benefit him more than anyone else.

Conversations with Jon usually left me with shivers, though I had found a way to coexist with him. I wanted him nowhere near my portfolio and felt confident I could keep him boxed out.

One person I could not keep at bay indefinitely was one of the other MDs and Jon’s direct boss… Brad. He would eventually work himself into any promising acquisition and had the power to do so.

I had seen the strategy play out enough times to know the pattern that pervaded all office towers everywhere. Brad had mastered the game. If you could elbow into a promising deal, you’d claim 20% of the credit of its success for yourself while only contributing 2% of the actual effort. If it goes bad? You only had a minor 2% role and it’s such a shame that you weren’t allowed more responsibility sooner. The mistakes that team made are so obvious, right?

Rinse, repeat. Climb high enough, and soon, you won’t even have to pretend to do the work anymore. You, too, can be a handsomely over-compensated layer of insulation between real decisions and real consequences. You can vacation with other copy-pasted success stories, send your kids to the same private schools, and pretend you earned it.

For now, neither Jon nor Brad were there yet. The analysts would trickle in, the floor would fill, and soon, the air would thicken - pressure and expectation pressing down like the weight of the skyscrapers outside. No shouting here. Just the dull murmur of men moving money, the occasional burst of laughter as someone found brevity amidst the spreadsheets and lines of code.

I had mediocre coffee, an expensive office chair, and a long day ahead of me.

If my numbers held and my progress was deemed suitable, the sword of Damocles would stay balanced for another week. A shave, shower and suit pairs well with good enough data and clean enough analysis - no matter the haggardness and inflammation that lies beneath.

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The Friday afternoon weekend-ruiner had come from a broker-dealer using the same hooks I’d seen used on other large transactions. Jeff was a frequent counterparty, and I sat at one of the biggest private equity shops in the world, and there’s only so many ways to describe wanting to move risk quickly from someone’s portfolio into someone else’s. The pattern was barely disguised:

‘Only a few of our best clients are being shown these pools on a first-look basis before we market more widely’.

We want to hook you quickly into doing serious work and make decisions quickly, before we let everyone else bid up the price even more.

‘No offer date set, send in best bids early for best execution’

Fast aggressive bidders can result in the assets trading before we receive other bids from our ‘best’ clients. Feel free to overpay.

‘Innovative new pooling structure for traditional cash-flowing assets. Current tranches are structured to have additional credit enhancements above closest comparable deals sold at discounts to par this year.’

We know this is a new animal so we did some math to entice you to bite on perceived extra cushion… so you don’t instead offer us a lower price than what we’re trying to sell you as fair market value.

‘Additional derivatives for the pools are available to help you hedge or tailor your exact risk profile for this exciting opportunity.’

Here’s a menu of side bets, dressed up as risk management but designed to make you overthink - and overpay. You can even build-your-own-bowl of contingent outcomes as long as you bake in our structuring fees and commissions.

‘Thank you for your consideration and please promptly reach out to your sales representative for data room access.’

Jeff is leaving in 2 hours on the 4:50 train. Move your ass, or start this Monday and find out how much ground your competitors have already gained.

‘Broker-Dealer LLC (placeholder name) makes no representations or warranties to the validity of the assets and buyers must exercise their own diligence. Broker-Dealer LLC may retain some, all or none of the transaction in accordance with their own rights and abilities as broker-dealer. Conflicts of interest can and will occur as a nature of our positions servicing our book and our clients. These conflicts of interest may pertain to any amounts of the underlying assets, tranches, and derivative transactions that may occur. Broker-Dealer LLC will undertake best efforts to notify all bidders of any changes to the underlying assets prior to final execution. Broker-Dealer LLC may also………”

Two pages of legal disclaimers telling everyone that you’re a big boy with a big boy job, and don’t send your lawyers after our lawyers because we told you the risks. If you lose money on these assets, that’s on you. We told you - our job is to make money on this from every angle, and we will.

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1:47 PM SAME DAY

The meeting with Senior MD Brian went well enough.

We spent 5 minutes catching up on and exchanging pleasantries that was a bit more deeper than the usual surface-level corporate small chat. I genuinely liked and appreciated Brian. He was in his late 30s, much closer in age to me than the other Investment Committee members and his youthfulness was uncommon in the firm and the industry to be promoted that highly.

He had neatly cropped sandy blonde hair and a lean build that told the story of multiple marathons ran in the last several years, a disciplined commitment to a solitary endeavor often seen across many offices in this city. Many, many endurance athletes fitting in long training sessions – anything, any time they could get it in – to give them a reprieve from the computer screens and give them an internal foundation of grit to get through the longer work days.

Brian possessed a rare combination of traits and had the good fortune of great timing – the two factors together built many rocket ship career trajectories for now-wealthy practitioners in this industry the world over. He had a humble and cordial demeanor based on his midwestern upbringing, and didn’t overtly throw his well-trained acumen and disciplined focus into the faces of others. When the Crisis occurred early in his career, he presented as a very likable and very dependable problem-solver that was unthreatening to his bosses – all of whom were scared for their own jobs in those precarious years. He rose quickly as the economy found its footing and zero interest rates helped fuel the recovery in asset prices.

His communication style was also more effective than most - I admired its orderly brilliance and had begun copying both his writing style and how he delivered messages verbally. He distilled difficult and complex situations into concise, easily understood points that still left intuitive ways for the audience to follow multiple paths of future optionality.

In a mostly meritocratic world of mathematical mercenaries, all Brian needed was helpful macroeconomic events and internal micro-struggles to give him the opportunities for success and advancement. He had not missed.

I occasionally wished we could grow closer, as he was one of a small handful of senior folks at my firm that I wished could be a true mentor to me. Brian’s likable demeanor also demonstrated a similarly polite closed-off nature. I was careful to push it too hard. I wasn’t his first Director of Acquisitions, and my predecessor had been kindly rotated to a different MD (Dispositions) after pushing boundaries too often.

I felt lucky to have him as my boss, considering the other alternatives present at the firm. Some of my own past brushes with prior bosses had demonstrated that widely varying levels of humanity and emotional stability existed in the Rolex and loafers demographic.

Our meeting was mostly formulaic in the points we covered - there was an established rhythm born out of prior briefings I had given him. Brian had the PDF pricing exhibits of Project Granite pulled up on his screen, and I quickly hit the salient points of the collateral underlying the tranches. We both knew from experience how seemingly slight variations in the modeling assumptions could lead to wide swings of profit & loss in different tranche levels over the life of the securities.

I tried to lightly explain some of the difficulties in the asset data and the structure of the portfolio, and why I had taken the initiative to re-engineer our models to do something new rather than simply use what we already had.

He trusted me - to a point - but I could tell he was wary of me doing something new and unexpected. Any variances to the normal way of doing things were often viewed by others as introducing unknown risks to the business.

The pool of assets had averaged out to something very, well, average for us. Maybe even enticingly better than average. At a better-than-average price than we expected. Brian and I had worked through billions of dollars of structured transactions and securitized pools together. At a portfolio level - the cashflow metrics, the LTVs, all the collateral risk metrics… these were all in line with what we would expect and want.

Yes, it was all unrated – no Fitch, Moody’s or S&P grades here. That was not unusual. But the assets are all performing well. No obvious distress. Cash flows seem stable. Whisper pricing from the broker was almost too-low-to-be-true. Big portfolio, available for only the 3-4 largest firms to even look at, but you have to move quick to get this sweetheart deal from one of the biggest broker-dealers that assembled it.

This wasn’t something that never happened, and it usually felt like a nice surprise. A nice reward from the PE gods for all your sacrifices, long hours, relationship building – sometimes the industry just coughed up a special situation that could mint you a great bonus if you just moved fast and didn’t fuck up.

I had almost let the Mikes run with it. They were thrilled; this was their first time experiencing such a gift from our industry’s version of the fairy godmother. It was a Friday afternoon when it landed in the inboxes, but the prospect of a juicy portfolio that could take up much up their weekend got them hyped up. We all saw the summary tables with the advertised yields and cashflow metrics; the Mikes were already high-fiving and fist-pumping. This is what it’s all about, baby.

But something had made me curious enough to filter myself from the usual corner-office Friday shop talk session with the guys; a usual nice reprieve at the end of a long week, some of VPs and Directors would huddle in to discuss various wagers on the markets, their fantasy leagues, wives, girlfriends, weekend plans … a nice tradition that lately helped me feel a bit more human. Something that even if I was mostly quiet, I felt like part of an established group of (almost) friends.

But something in that email solicitation felt different. Different had to be understood.

The assets in this portfolio were largely disparate in geographical nature, spanning both rural and urban locales across the entire county. The type and the collateral more varied, the sponsors and ownership histories more diversified, the LTVs were distributed evenly amongst high and low and mid-range LTV levels, there was no majority between fixed vs floating debt behind the assets, and there were data fields signaling a significant existence of sub-debt and preferred/hybrid equity on these assets… but those additional pieces of those assets capital stacks had limited on details beyond basic disclosures of their existence. More significantly, perhaps, the historical and current data on their performance was spotty - often stale by a few months or more, and inconsistent at best in its scope and availability.

It wasn’t unusual in a large data tape of assets to have incompatible data issues and formatting problems we had to adjust for - a column for percentage values could have both integers and decimal points, for example, where some sleep deprived analyst didn’t clean merged data from their own sources well enough prior to their MD demanding it to be sent out. It also wasn’t unusual in a large enough data tape to have flatly wrong and impossible data in it. It was standard process for everyone to run checks, make adjustments and new estimates and request updates where possible.

But this pool, it was just more of that. Not obscenely more - good enough to pass muster in our shop and our competitors. But more than usual. Maybe more missing values, more stale dates, more inconsistent formatting, more servicer notes with text characters cut off due to field limits. And the pool wasn’t thematically geared to a single asset class, or a single geography, or had anything perceivable theme at all was also uncommon.

I almost hadn’t called Jeff the Broker-Dealer. What was the point? But something about this one - itched. So I dialed before he hopped on his Friday 4:50 train to point this out. He brushed off the data concerns without even acknowledging them, in that inspiringly insufferable way every good salesperson can simply evaporate your concerns. He made a vague insinuation that I was lucky to get such a uniquely diversified pool in such a buyer-friendly structure. I should happily run our models and bid something strong quickly because so-and-so ‘already called me before you and he’s very excited about this one’.

I hate brokers.

I didn’t give Brian all those details. I instead told him what he already knew - we have models that can take portfolio level metrics… weighted average this, median that… then generate assumed cashflows under different input settings, and translate them to the cashflows that different tranches receive. We can also deeply model the underlying assets of a portfolio that are of the SAME asset class, and we can stitch those underlying cashflows of all different asset types back together for a portfolio performance overview.

What we didn’t have was what this transaction was offering - different asset types where under slightly unusual conditions, cashflows would divert to different tranches in slightly unusual ways and therefore outcomes to the tranches would be slightly unusual in P&L terms. At least, this was the way I understood it in the sterilized language and ‘Exhibit A‘ math formulas and ‘Schedule I’ tiering and the 47 page long list of definitions.

Brian seemed less perturbed than I thought he should be.

“You’re overthinking it. I hear your concerns, but if we buy it at your current max price - the equity check from the fund…“, he checked his screen and ran the mental math, “…would help us close out the last 1.2% of Fund 9 and help us deploy from 10.”

Fund 9. Almost closed. Fund 10. A fresh pile of capital, waiting to be put to work.

The firm had raised $5.6 billion for Fund IX, and Fund X had already closed even bigger. It didn’t matter what kind of deals we worked on—structured securities, whole loans, distressed portfolios. Capital needed a home. And once one fund wound down, the machine had to start moving money out of the next.

I’d overheard enough snippets from the investor relations team to know they barely cared about what we actually did. Pension funds, sovereign wealth groups, insurance money—billions flowed in because of our track record. Not because anyone in IR understood what a bad deal really looked like.

And yet, even as Fund 9 wound down, the CRE side of the shop was stalling. I’d heard murmurs—a long bull run, too much dry powder, not enough opportunity. Some of the real estate heads were still riding the returns of their post-Crisis plays, but the more recent vintages? Thin IRRs, clawbacks potentially looming.

Brian listened to me, and we both agreed that even with all my extra unnecessary and potentially dangerous work that the pricing STILL came out to a reasonable range we all expected based on the headline metrics.

This would all be fine (enough) if the asset pool was all one asset type. It would all be fine (enough) if the data had appropriate levels of missing and erroneous data. Why did I not feel fine (enough)? Was it the leftover effects of too much sushi and even more Japanese whiskey from last night?

Am I being skittish? Have I lost my nerve? In our now rarer and rarer moments at home together, Jessica had mentioned a few times that she feels something has changed in me. That I’m more distant and closed off. I had brushed it off that our schedules are just too busy, we both have demanding jobs and it’s harder for us to connect, we should really just take that long vacation to New Zealand, maybe even a whole sabbatical… maybe even move back home to-

No. She hated that idea. She loved living in the city. She was more at home in the dense, tall urban landscape of ritz and noise and restaurants and fashion. All her friends lived here. I should be better at trying to make friends outside of work. When am I going to use that gym membership I bought? She’s right, that gym cost more than my first car’s monthly payment before we moved here. And I was averaging one visit per month.

Brian and I wrapped up. I stood, stretched out a shoulder. Stiff. Everything stiff. I took the notes he’d given me, ran a hand down my face, and exhaled. Back to my desk. Back to Project Granite.

I knew Brian was going to brief the rest of the Investment Committee on Granite later in the day, and his notes were helping the team get ahead of the likely questions that would come out of that meeting.

Is Brian too smart to be rattled? Is he just confident and secure in his seat, and I’m still slowly putting my career together until I’m in a good enough position? He’s been doing this longer than me, and he worked the same side of the street as Jeff the Broker-Dealer and survived it even during the Crisis.

I knew what I had to do. It wasn’t what I wanted to do, but I never had enough time or availability to do what I wanted to do for each deal.

Always incomplete information. Always a deadline. Always a race—

The mathematically optimal price, the perfect pitch to the Investment Committee, the way we outbid everyone else AND predicted the future AND never missed AND always won AND never lost AND—

Fuck.

I squeezed my eyes shut, pressing my palms into them. The numbers were right. The model was fine.

So why was I still thinking about Project Granite?

END OF CHAPTER 1

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