Don’t Ask Dan Zwirn About the Future

His firm argues that flawed fund structures, easy money, and overspending have created perfect conditions for a “great rationalization” in technology.

Dan Zwirn (Peter Foley/Bloomberg)

Dan Zwirn

(Peter Foley/Bloomberg)

Optimists shouldn’t ask Dan Zwirn about where the markets are headed.

The investor paints “a potentially ugly picture of a financially violent world to come,” one that has the “weakest prospects he’s seen in his 26-year career.”

But at least shareholders in his funds don’t have to worry, wrote Zwirn in his upcoming letter to investors, which addresses what he expects from years of loose monetary policy by central banks around the world coupled with massive government spending.

Even as markets have been going straight up since their dip in March 2020, Dan Zwirn, CEO and CIO of Arena Investors, has been getting to know promising companies in fintech, e-commerce, and electric vehicle infrastructure, among other sectors. He wanted Arena to be ready for opportunities when markets started going sideways by understanding these companies’ intellectual property and developing relationships with them.

“We have been building our arks while the sun has been shining, such that we can benefit from the “convexity” that a suddenly changing market environment could create,” he wrote in an upcoming investor letter. “The addressable market is titanic,” Zwirn added in an interview with Institutional Investor. It’s not that the longtime contrarian thinks these businesses aren’t going to be truly transformative. He’s just a big believer that disruptive technologies — think railroads and telephones — have always followed a well-worn path, with investors losing big along the way. The promise of these technologies always seems to lure more money from investors than is actually warranted. The longtime contrarian laid the blame at the feet of a lot of forces, including rising interest rates.

“[Disruptive tech companies] are overfinanced (almost always in periods of easy money), the capital is overspent relative to the market opportunity (often with insiders and related parties also overpaying themselves), there is a crash (usually brought on by a downturn that includes the tightening of interest rates), and then there is an eventual consolidation into a much smaller number of companies that have the appropriate economics (usually spanning many decades),” he wrote to investors.


Arena told II that the environment is now more volatile than ever, in part because of aggressive monetary and fiscal policies. Still, Zwirn declined to make any predictions about the markets, despite the week’s huge swings. “There are a whole lot of reasons why, whether it’s the structure of the alternative investment universe or the speed at which volatile news promulgates within social media,” he said.

Zwirn is a critic of the proliferation of narrowly defined credit and private equity funds, which force managers to keep putting money to work even when a geography or sector is in bubble territory. As markets fall, these same managers can’t go after many of the opportunities that arise.

“We have flexibility. Any geography, any industry, public, private. You can set yourself up to be a beneficiary of that volatility, because you can do things that make sense if things stay the same or do even better if they get worse,” he said.

Zwirn, an avid financial history buff whose letter includes a detailed case study on railroads, said he’s also seeing opportunities in the fintech ecosystem, such as financing payments and receivables and versions of trade finance, “buy now, pay later” companies, and home-improvement loans. He explained that Arena can lend against these assets, own a piece of the business, and benefit from helping these companies transition to a place where they can tap banks or the securitization markets for financing.

Arena is also looking at potential deals among small- and mid-cap public companies that don’t have access to banks or private equity firms, and for opportunities in the “convergence of private convertibles and SPACs,” or Special Purpose Acquisition Companies. To complete transactions, SPACs will have to do private convertibles to access enough capital independent of the number of people who will exercise their right to redeem at the end of the SPAC period, Zwirn explained.

“If even a fraction of these Great Rationalization storms come to pass (and even if they elapse in a fraction of the time relative to historical precedents), these will prove to have been valuable investments, as the ‘other side’ will present myriad opportunities, such as non-performing loans, rescue financings, DIP loans, M&A financing, refinancing of loans, hard-asset purchases and liquidations, and new borrowing.”