Igor Lotsvin and David Chu of Soma Asset Management presented at the Value Investing Congress in Pasadena. Their talk was entitled, The U.S. Banking Sector: Chaos and Opportunity. We conducted an exclusive interview with Igor Lotsvin, and it’s our pleasure to bring it to you here.

Prior to co-founding Soma, Igor Lotsvin was portfolio manager with Symphony Asset Management, a multi-strategy hedge fund and an asset management firm with over $7 billion in AUM. While at Symphony, Mr. Lotsvin was part of the portfolio management team working on the firm’s flagship long/short equity hedge funds (with over $1 billion in AUM) and was lead portfolio manager on several long-only strategies. Mr. Lotsvin was instrumental in building Symphony’s long-only strategies, having helped develop this business from concept to over $1.2 billion in AUM. Soma Asset Management benefited from its bearish outlook on credit in 2008, reporting a return of 26%, net of fees.

The Manual of Ideas: What was the impetus for starting Soma Asset Management and how would you describe the essence of your firm?

Igor Lotsvin: At the end of 2006 we noticed very rapid deterioration in the credit statistics of most consumer loans – residential housing, credit cards, auto loans, etc. This was surprising, as at the time, unemployment levels were low and capital markets were flooded with abundant liquidity. As we further investigated various credit asset classes — leveraged loans, high yield, CDOs, etc. — we came to the conclusion that the world was in the middle of a credit bubble, not simply a housing bubble. The bubble began to burst in the weakest part of housing market – subprime, to be exact. But we felt that it would likely spread to all asset classes. At the time very few people shared our view, and David Chu and I decided to start our firm to effectuate that variant view.

We are value investors who pursue the most compelling risk-reward, asymmetric opportunities across the entire capital structure. We can be invested in debt, loans, equity or options, depending on the risk-reward outlook. Moreover, we believe that capital markets are intricately and – over longer periods of time – always linked. Hence we try to find opportunities where we believe dislocations are temporary and markets converge.

Specifically we pursue three separate strategies – long/short across the capital structure, capital structure arbitrage, and distressed value investing.

MOI: What lessons have you and David learned running your own firm that you might not have learned in your previous role at Symphony Asset Management?

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