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I’ve been trying to persuade you that money gets sold just like any other product. This is probably a bit more insider-ish than the average business owner would be aware of but I think it’s worth listening to because I have promised to go deep on the inside of how capital decisions get made in the banking and capital market world. There’s a hidden secret to securing low-risk loans to invest in that will sound simple when I say it but in my experience fund managers are not aware of. This is the idea that if you have a super-focussed sales (or origination team) your credit risk goes down.

Now that’s counter-intuitive because you often think of sales and origination as opposing forces. The entire credit world is set up that way to create a healthy tension between people in a sales or business development role and people in a risk assessment role. The two roles are intertwined but the idea is that someone incentivised to close deals, needs to be held back by a committee who needs to keep the capital safe. And if you’ve spent any time at all in my training material, you’ll know that I major on exactly those fears of loss that drive lending decisions in my humble view.

But fund managers will know – and here’s the part that’ll make sense only once I say it out loud – if you have only one or two deals to choose from, you tend to try and make 1 or 2 of those deals work, instead of just say “no”. When you have 20 deals on your desk to choose from, you can take your pick to manage this month’s budget. That’s the secret; a mediocre risk team with a sales team that is bringing in an excess of deals to assess will lose less money than the world’s best credit risk brains trying to make the only one or two deals they have fit into their risk model.

You see, even in finance, decision-making is actually way more of an emotional process than you think. The moment a fund manager has too few deals to assess, it sets them up for two opposing fears. The one fears is the loss of investor capital; a very legitimate fear because you lose both bottom line and reputation – it’s a big problem. But on the other hand, when too few deals are coming in, you have an equally legitimate fear of not doing enough business to pay the overheads, and that’s also a big deal. Neither intelligence or degrees are of much use when you’re wrestling with that. Trust me I’ve been through it. I had a really close business partner once and we were both smart guys, experienced, qualified, and good looking to both ourselves and our mothers. But we got to exactly the point where you had two colliding fears. We had only one or two viable deals on the go for a number of reasons, a few deals had just fallen through, and the other promising deals were too far on the horizon. And so you had two opposing legitimate fears at play. I was saying “no” this deal is too risky, he was saying, it’s way too risky not to extract a return out of this deal because there are bills to be paid. Both fears are totally legitimate but are driving you in a different direction.

And so chaos ensued and nearly overnight there was complete chaos in the business because the fear of loss is such a powerful thing. The real secret behind stories like these is not to be afraid of how fears can drive capital, but how to understand how a few basic points about how to navigate those fears can get you the capital you want.