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Banking, Cybersecurity, and Green Investing · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller.
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Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moven news.
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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
0:20
Speaker 1: Let's talk banking. We've got a c suite conversation here.
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Speaker 1: We're talking Texas, We're talking banking. We do that with
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Speaker 1: the Rob Holmes, CEO of Texas Capital Bank, joins us
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Speaker 1: Dan Hoverman Hoverman Hoverman, Thank you very much, sir, ahead
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Speaker 1: of corporate and investment banking Texas Capital Bank. Guys, talk
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Speaker 1: to us about what is Texas Capital Bank? Who your
0:39
Speaker 1: customer's house business?
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Speaker 3: Well, that's a lot to unpass.
0:43
Speaker 1: That's why we want to talk guy.
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Speaker 3: What is Texas Capital Bank.
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Speaker 4: It is the first full service financial services for arm
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Speaker 4: to headquartered in Texas.
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Speaker 5: Nice.
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Speaker 4: We did a wholesale transformation over the last two and
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Speaker 4: a half years. Most people overuse the word transformation. There
0:59
Speaker 4: is nothing it hasn't been touched in this bank. We
1:01
Speaker 4: redid the tech stack, the operating org structure about twenty
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Speaker 4: five to forty new products and services, depending on how
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Speaker 4: you define them. We did segmentation. We founded an investment bank,
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Speaker 4: both wholesale investment banking and also institutional sales and trading.
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Speaker 4: Both are profitable in the first year, which is pretty great.
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Speaker 4: We also have a top five mortgage warehouse business in
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Speaker 4: the country, which which allowed us to build frankly, the
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Speaker 4: sales and trading floor off the back of that with
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Speaker 4: mortgage trading TBA and gestation. So we're a wholesale bank
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Speaker 4: built for businesses but also private wealth to people that
1:39
Speaker 4: run and own those businesses. We have national verticals, our
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Speaker 4: corporate bank, industry verticals so FIG, TMT, Energy, diversified.
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Speaker 6: Healthcare, and healthcare government nonprofit.
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Speaker 3: So those are those.
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Speaker 4: Are the Those are the industry verticals that are nationwide,
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Speaker 4: mortgage warehouses, nationwide, season trading obviously, investment banking obviously.
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Speaker 3: But the core focus and base and scales is Texas.
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Speaker 3: For sure.
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Speaker 4: We're the number one lender to Texas businesses of any
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Speaker 4: Texas based bank, which is a pretty big deal.
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Speaker 7: Nice that is a big deal.
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Speaker 2: It's a big state, man, it is a large state,
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Speaker 2: and they got a lot going on down there. So
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Speaker 2: how important I mean, the oil price must be extremely
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Speaker 2: important to you. And we're watching today West Text Intermedia
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Speaker 2: went up over ninety five.
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Speaker 7: Dollars a barrel. I guess that's good for the Texas economy.
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Speaker 4: Well, the great thing about Texa economy is how diversified
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Speaker 4: it is. So oil and gas about nine percent, and
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Speaker 4: everybody talks about oil and gas and fossil fuels and
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Speaker 4: they talk about Texas, but it's also the number one
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Speaker 4: and two when in Solar Provider we produce more alternative
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Speaker 4: energy than California. So it's oil is a big deal,
2:54
Speaker 4: but it's it's not as big as it used to
2:56
Speaker 4: be as house people think of Texas. So if you
2:58
Speaker 4: look at our ETF, which Dan can talk about, our
3:01
Speaker 4: ETF is comprised of contribution of the subsector to GDP
3:06
Speaker 4: of the market cap, and the five largest holdings in
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Speaker 4: that is Tesla, McKesson, Waste Management, Schwab, and Excellent. Now
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Speaker 4: I can't think of a more diverse economy than that,
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Speaker 4: right exactly.
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Speaker 3: And economy. Look, the economy is ten percent of the
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Speaker 3: economy of the United States.
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Speaker 7: You can't say a TF without telling me the ticker.
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Speaker 3: T XS, t X Texas without the valves.
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Speaker 5: T X Texas without pretty cool, right, Hey Dan on
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Speaker 5: the corporate investment banking site, what are your clients saying
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Speaker 5: about their outlook here?
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Speaker 1: I mean, how's business for your clients?
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Speaker 6: It remains very robust if you look at the way
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Speaker 6: that folks are kind of participating in the economy, at
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Speaker 6: least from the Texas angle. If there's a recession in
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Speaker 6: the United States, there probably won't be a recession in Texas.
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Speaker 6: So if you look at the performance in the TXs
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Speaker 6: itself kind of outperforming the Russell MidCap or the SMP.
4:02
Speaker 6: The more Texan you get, the more the stocks outperform.
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Speaker 6: So the you know, the outperformance on the index is
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Speaker 6: really driven by kind of how closely tied people are
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Speaker 6: to the Texas economy.
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Speaker 1: We got introduced him to Matt Winklin. That's a column
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Speaker 1: right there, Yes, exactly, Yes, we have our founder of
4:17
Speaker 1: Bloomberg News. He loves going into state by state, looking
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Speaker 1: at the data and saying that, you know, for example,
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Speaker 1: California is people saying California is San Francisco in trouble.
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Speaker 1: It's not what the data shows. So he'd love to
4:28
Speaker 1: see talking about that kind of data here. So I mean,
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Speaker 1: what's the future, what's the next three to five years
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Speaker 1: for your bank?
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Speaker 7: Here?
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Speaker 1: Is it continue to share in Texas? What's the kind
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Speaker 1: of your strategy?
4:39
Speaker 4: Look, here's the great news. We started two and a
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Speaker 4: half years ago on a wholesale transformation. There was a
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Speaker 4: lot of risk and doing everything at once that is done.
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Speaker 4: There was risk and acceptance of the strategy by clients
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Speaker 4: and by employees and talent check check. The entire platform
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Speaker 4: was built about a month ago. Was the first time
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Speaker 4: we could say the platform was built, the capabilities were there,
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Speaker 4: and the talent was there top to bottom, both both
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Speaker 4: top down and bottom up. And so what's next for
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Speaker 4: us is just going to lighting clients, onboarding clients as
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Speaker 4: fast as we are today. We onboarded more clients the
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Speaker 4: first quarter than near the quarter the history of the bank.
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Speaker 4: In spite of the first quarter, Vince regional banks were
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Speaker 4: on board are thirty percent more clients the second quarter
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Speaker 4: than the first quarter.
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Speaker 3: We are a top.
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Speaker 4: Ten agent for leading bank syndications in the country for
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Speaker 4: the first six months. So it's it's just you know,
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Speaker 4: we've done everything. Most of the people on this platform
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Speaker 4: that our leaders have come from much more complex jobs
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Speaker 4: and much more larger companies, and we've all done it
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Speaker 4: a thousand times, we haven't done it with this jersey on.
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Speaker 4: So we got to do it with this jersey on
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Speaker 4: and just build what we have. And we're really, really,
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Speaker 4: really excited about doing that, and the client response has
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Speaker 4: been overwhelming.
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Speaker 1: Hey, Dan, you go into pitch business to on a
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Speaker 1: piece of corporate banking, investment banking business. How often are
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Speaker 1: you competing against some of our neighbors here in New
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Speaker 1: York City. Who's your competitor really day to day?
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Speaker 6: Yeah, there's really only two types of competitors when you
6:10
Speaker 6: think about it. So we're either competing against other Texas banks,
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Speaker 6: and the sales point there is that we're full service
6:17
Speaker 6: and nobody else that's headquartered in Texas is. And so
6:20
Speaker 6: at some point, unless you bank with us, you're going
6:23
Speaker 6: to outgrow your relationship. If you want to have a
6:27
Speaker 6: relationship where you never need to go move your accounts,
6:29
Speaker 6: you never need to make a new friendship with an RM. Frankly,
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Speaker 6: it's going to be tough to find folks that are
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Speaker 6: more maniacally focused on delivering great client experience, then you
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Speaker 6: should bank with us, or we're competing with one of
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Speaker 6: the banks that are in New York and at some
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Speaker 6: point our job really is just to make them fungible.
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Speaker 6: We work well with every New York bank. We know
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Speaker 6: a lot of us have a history of working.
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Speaker 2: You work with all the New York banks, even those
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Speaker 2: that have a say in social issues.
7:00
Speaker 7: A client have any banned them from Texas.
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Speaker 6: It's it's you know, we're all about clients in here yesterday.
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Speaker 3: So yeah, he's with.
7:07
Speaker 7: Us this week.
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Speaker 3: Okay, with us today? Oh excellent, Okay, have a dinner
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Speaker 3: with him and I.
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Speaker 4: So what I would say is it is it is
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Speaker 4: highly unusual for a person running a business or that
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Speaker 4: owns a business that wants to defer the decision making
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Speaker 4: about his or her business to San Francisco, New York
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Speaker 4: or Charlotte so they can get the same products and.
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Speaker 3: Services and be locally covered.
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Speaker 4: That's their preference, and we we have a we have
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Speaker 4: a high amount of confidence we can do that.
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Speaker 2: But what's what's recruiting talent? Like I mean, obviously it's
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Speaker 2: a very hot place to move right. Everybody wants to be.
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Speaker 2: We hear about Austin all the time. I love Dallas,
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Speaker 2: Paul San Antonio.
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Speaker 3: Recruiting talent, got some good schools. Texas Okay.
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Speaker 4: So Texas had is the only state in the country
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Speaker 4: with living Tier one universities. We had started a junior program,
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Speaker 4: first junior program ever at this bank, like everything else
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Speaker 4: first of this bank.
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Speaker 3: The first year we had sixty spots. We had eight
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Speaker 3: hundred applications.
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Speaker 4: Second year of sixty spots, two thousand applications, third year
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Speaker 4: sixty spots, about twenty eight hundred.
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Speaker 3: So junior great senior. Let's just put it this way.
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Speaker 4: I've had more than two or three CEOs in New
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Speaker 4: York called me and asked me how the hell I
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Speaker 4: hired that person? And so I would say we were
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Speaker 4: able to hire. It's not easy, but people want to
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Speaker 4: be a part of a build, they want to make
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Speaker 4: a difference, and they love living in Texas.
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Speaker 1: What's the biggest challenge you guys face right now?
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Speaker 4: The biggest challenge is, you know what, just what I've
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Speaker 4: said earlier, We've got to execute perfectly. Like when we
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Speaker 4: led the largest aged did debt deal in the country
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Speaker 4: two weeks ago for a Texas based on a gas company.
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Speaker 4: Now think about that, the largest SOL led deal in
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Speaker 4: the country.
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Speaker 3: Bank Capital did London. It was a capital markets deal. Okay,
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Speaker 3: we don't own any of it.
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Speaker 1: Okay.
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Speaker 3: It was globally.
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Speaker 4: Distributed with the best investors in the world and we
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Speaker 4: did it great.
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Speaker 3: But it is our first time.
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Speaker 4: I mean, if you go talk to the CEO and
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Speaker 4: the board, the client, they love it. And by the way,
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Speaker 4: a money center bank pitched it, pitched a different structure
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Speaker 4: and spit the bit so which is causes harm to
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Speaker 4: that client. So they gave him the wrong advice and
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Speaker 4: they failed. Two mouths later, we got it done.
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Speaker 1: All right, good stuff. I'm glad you guys spared the
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Speaker 1: time to come in and see us. Really appreciate that.
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Speaker 3: Thank you.
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Speaker 1: We always like talking to some of those folks out
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Speaker 1: there getting it done on the ground. Rob Holmes, CEO
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Speaker 1: of Texas Capital Bank, as well as Dave Hoverman, head
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Speaker 1: of Corporate and Investment Banking Texas Capital Bank, based in
9:45
Speaker 1: the Big Deep.
9:47
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10:01
Speaker 1: Let's switch over back to these markets. Here again, the
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Speaker 1: S and P up about four tenths of one percent
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Speaker 1: near an intrut day high, the NASH deck up about
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Speaker 1: three tenths of one percent. Liz Young joins us. She's
10:11
Speaker 1: head of investment Strategies at SOFI. Hey, Liz, when you
10:15
Speaker 1: talk to your clients, When I think of a SOFI client,
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Speaker 1: I think of more of a younger client and maybe
10:19
Speaker 1: have a longer perspective in these markets. A is at
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Speaker 1: the case and B what are you telling them these days?
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Speaker 9: Yeah, thanks for having me so. Generally speaking, our investors,
10:31
Speaker 9: or the investors on our platform do skew younger. About
10:34
Speaker 9: sixty five percent of them are between the ages of
10:37
Speaker 9: twenty and forty, so compared to the average investor or
10:40
Speaker 9: the average II networth investor, they are younger. However, we
10:44
Speaker 9: do have quite a few that are over the age
10:46
Speaker 9: of forty as well, so it kind of runs the
10:48
Speaker 9: age gamut. I would say, you know, most most of
10:52
Speaker 9: our investors do have a longer time horizon. There can
10:55
Speaker 9: be a challenge in convincing them of that, though, and
10:58
Speaker 9: we've got a market and in an environment today that
11:01
Speaker 9: really just forces all of us to focus on the
11:03
Speaker 9: short term, and we hang on every data point, every
11:06
Speaker 9: word from the FED, and it does make us more
11:09
Speaker 9: short term in nature when we're thinking about our investing decisions.
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Speaker 9: And just the individual investor of today is a trader.
11:16
Speaker 9: I mean, they really do enjoy trading individual stocks, and
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Speaker 9: I think that that's an important distinction to make. But
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Speaker 9: there are a lot of investors.
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Speaker 2: I mean, well, a retail investor trading stocks just a
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Speaker 2: recipe for losing money.
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Speaker 9: No, it's it's a recipe for learning. And you know,
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Speaker 9: it's not necessarily that you would lose money.
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Speaker 2: Today stocks as well, like it's in the tune of
11:42
Speaker 2: losing two hundred grand in the first year.
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Speaker 10: What a great I.
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Speaker 9: Mean, I do think that it's a wonderful thing that
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Speaker 9: there are so many individual investors today interested in getting
11:53
Speaker 9: engaged in their investment horizons and getting engaged in the process.
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Speaker 9: I think really the risk is more that if the
12:00
Speaker 9: information that you're given is headline worthy, you're probably going
12:04
Speaker 9: to end up concentrated in a certain handful of names,
12:08
Speaker 9: or in the names that are just the big ones,
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Speaker 9: and that's not necessarily creating a diversified portfolio. And there's
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Speaker 9: also this fallacy of familiarity, so investing in companies that
12:19
Speaker 9: you're only familiar with, rather than making sure that you're
12:21
Speaker 9: diversifying out across sector, across asset class, across investment type,
12:27
Speaker 9: even in vehicle. So I think it's perfectly fine to
12:30
Speaker 9: invest in individual stocks here and there, but I wouldn't
12:33
Speaker 9: make it necessarily the core of your portfolio, and you
12:36
Speaker 9: want to make sure that you still own a decent
12:38
Speaker 9: number of individual stocks.
12:40
Speaker 1: List, how do your clients use ETFs? I mean, ETFs
12:44
Speaker 1: has just been a phenomenal growth story within financial services
12:48
Speaker 1: really over the last decade plus. You know, my day
12:51
Speaker 1: was mutual funds. Now it's all ETFs. How are they
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Speaker 1: used by your customers.
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Speaker 9: They're very widely used by our customers, and they're very
13:00
Speaker 9: widely used by individual investors everywhere, largely because, number one,
13:04
Speaker 9: they give you an opportunity to hold a lot of
13:07
Speaker 9: securities for a much lower cost than many of the
13:10
Speaker 9: mutual funds of the past did. So there's better opportunity there,
13:14
Speaker 9: and there's great diversification opportunity in them. I think ETFs
13:19
Speaker 9: are now that they're such a big part of the market,
13:22
Speaker 9: it is important to still do your research on them though,
13:25
Speaker 9: and there are a number of different options in each space,
13:28
Speaker 9: even as you get to more niche parts of the market. So,
13:31
Speaker 9: for example, let's say you want to buy a dividend ETF,
13:34
Speaker 9: you want to do the research and make sure that
13:37
Speaker 9: you're buying a dividend ETF, that is, holding companies with
13:40
Speaker 9: sustainable dividends or growing dividends rather than just currently high dividends. Right,
13:45
Speaker 9: So there's still different things that you need to do
13:49
Speaker 9: to make sure that you're not completely passively investing. But
13:52
Speaker 9: I think ETFs are a great tool for investors of
13:56
Speaker 9: all wealth categories to use for exposure to the market.
14:00
Speaker 2: Do you see people piling into investors piling into, you know,
14:05
Speaker 2: treasuries or places where you can get safe return for
14:08
Speaker 2: the first time in a generation.
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Speaker 9: I don't know if piling in is the right way
14:15
Speaker 9: to think about that, but I think that over the
14:17
Speaker 9: last year or so, many people have moved into treasuries
14:21
Speaker 9: more than they ever expected to, and it has been
14:26
Speaker 9: a tough It's been a tough trade lately as we've
14:28
Speaker 9: seen a sell off in treasuries, particularly on the longer
14:31
Speaker 9: end of the curve. But this is also an environment
14:34
Speaker 9: where many investors have not seen yields like this on
14:38
Speaker 9: treasuries ever in their investing lifespan, So it's offering you
14:43
Speaker 9: to get paid to wait, and I don't think that
14:46
Speaker 9: that's a bad idea. I do think that there are
14:49
Speaker 9: plenty of people who have also used money market funds
14:52
Speaker 9: to do that. But there's still a decent amount of
14:55
Speaker 9: appetite for equities. I mean, the S and P is
14:57
Speaker 9: only down about seven percent since at local high in July,
15:01
Speaker 9: and that's not even in correction territory yet, so there's
15:04
Speaker 9: obviously still plenty of money in the equity market.
15:08
Speaker 1: What's your market call here, Liz, What are you telling
15:11
Speaker 1: your customers.
15:13
Speaker 9: I've been pretty cautious all year, obviously wrongfully so in
15:18
Speaker 9: the beginning of the year. I continue to be cautious.
15:21
Speaker 9: And right now, what we're seeing in the market, which
15:23
Speaker 9: I wrote about in my blog today, is some quiet weakness.
15:27
Speaker 9: There's been a pullback, but quietly weakening from a momentum perspective.
15:32
Speaker 9: So if you look at things like the fifty day
15:34
Speaker 9: moving average of the S and P recently rolling over
15:36
Speaker 9: and moving downward, you look at the number of SMP
15:40
Speaker 9: members trading above their two hundred day moving average, that
15:43
Speaker 9: percentage is now down to forty percent, and that's dropped
15:47
Speaker 9: pretty sharply in the last couple months now, not near
15:50
Speaker 9: crisis levels, not near really deep levels of a pullback.
15:54
Speaker 9: Usually you get that number somewhere in the eleven percent
15:57
Speaker 9: range when things are really bad, but dropped. And then
16:01
Speaker 9: you look at things like the relative strength indexes, which
16:05
Speaker 9: usually indicate whether things are oversold yet, and that tells investors, Okay,
16:08
Speaker 9: we've had a pullback, was it enough? Is it time
16:10
Speaker 9: for a bounce? And the Relative Strength Index the RSI
16:14
Speaker 9: reading on stocks shows that things have gotten a bit
16:17
Speaker 9: worse but are not washed out yet. So I do
16:20
Speaker 9: think that there's probably more risk to the downside here,
16:23
Speaker 9: especially as yields keep rising.
16:25
Speaker 2: Are you concerned about the government shut down as an investor?
16:30
Speaker 2: I mean, we're all worried that the pandaicam could be
16:34
Speaker 2: turned off, But does it matter to the markets.
16:39
Speaker 9: The markets don't seem overly concerned with it, yet I
16:42
Speaker 9: do think it matters to the markets.
16:44
Speaker 3: This is a.
16:45
Speaker 9: Story, though, that keeps repeating itself through market cycles. It
16:50
Speaker 9: seems like we're talking about a government shutdown every six
16:53
Speaker 9: months to a year, and it's no longer a newer,
16:57
Speaker 9: surprising headline or worry for us to climb as market participants.
17:01
Speaker 9: And what I think we've been conditioned to believe is that, yeah,
17:05
Speaker 9: things might get a little dicey into the eleventh hour,
17:07
Speaker 9: but eventually they figure it out. So I think the
17:10
Speaker 9: bigger risk here is that there is a shutdown that
17:12
Speaker 9: lasts a longer period of time, and it occurs during
17:16
Speaker 9: a time when we're hanging on all of that data,
17:19
Speaker 9: and what if some of the data is not available
17:21
Speaker 9: as we expect it, even just for a few days.
17:24
Speaker 9: So I do think there's a risk in the market
17:27
Speaker 9: because of that. I think, you know, we're not in
17:29
Speaker 9: a place where we want more uncertainty, that's for sure.
17:33
Speaker 9: So I don't think it's necessarily a good thing to
17:35
Speaker 9: have on the horizon. But so far markets don't seem
17:38
Speaker 9: that spooked by it you have.
17:40
Speaker 2: I mean, you did mention in your blog, which I'm
17:44
Speaker 2: pretty sure on the money.
17:45
Speaker 7: Right if I look at sofi dot com, so.
17:48
Speaker 2: You point out that the VICS has been marching steadily higher.
17:51
Speaker 2: It's not alarming yet, right, but it is starting to
17:56
Speaker 2: creep up and look more and more interesting it Right now,
18:00
Speaker 2: it's trading at seventeen to nine, right.
18:04
Speaker 9: Well, it's funny. I mean, as investors lately, we've been
18:07
Speaker 9: conditioned to expect AVIC somewhere between thirteen and fourteen, which
18:11
Speaker 9: as we know, is historically low. So having it at
18:15
Speaker 9: seventeen eighteen, it's been above eighteen for a few days.
18:18
Speaker 9: Having it in those that level seems high compared to
18:23
Speaker 9: what we've been experiencing on average. It's not really that high,
18:26
Speaker 9: and the mental threshold is usually twenty, So as long
18:29
Speaker 9: as it's below twenty, things are still typically considered subdued
18:34
Speaker 9: or you know, not necessarily unsafe or terribly volatile. But
18:40
Speaker 9: it's worth noting that it has marched up four points
18:43
Speaker 9: or so in a pretty short period of time. And
18:46
Speaker 9: that goes along with some of the other things that
18:48
Speaker 9: I mentioned earlier in the interview, with you know, number
18:50
Speaker 9: of stocks above the two hundred day falling, the RSI,
18:54
Speaker 9: number of stocks that are showing over sold rising. So
18:57
Speaker 9: there's there's clearly some breakdown and some weakening happening under
19:01
Speaker 9: the surface in the market. Again, none of this is
19:03
Speaker 9: at alarming levels, but it's happening enough that it's starting
19:08
Speaker 9: to feel like paper cuts and it's a nagging pain
19:11
Speaker 9: that I don't think we should gloss over.
19:13
Speaker 1: All right, Liz, thanks so much for joining us. As always,
19:15
Speaker 1: Liz Young, head of Investment Strategies at SOFAR, giving us
19:19
Speaker 1: her market call.
19:20
Speaker 8: Here, you're listening to the tape catch are live program
19:24
Speaker 8: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
19:28
Speaker 8: the tune in app, Bloomberg dot Com, and the Bloomberg
19:30
Speaker 8: Business app. You can also listen live on Amazon Alexa
19:34
Speaker 8: from our flagship New York station. Just say Alexa play
19:37
Speaker 8: Bloomberg eleven thirty.
19:40
Speaker 1: Let's continue our discussion on the ecosystem ESG the green outlook.
19:45
Speaker 1: If you will, we can do that with doctor Lise
19:47
Speaker 1: Castillo Nilis. She is with the firm Ramball and she
19:52
Speaker 1: joins us via zoom. Hey, Lise, can you just tell
19:56
Speaker 1: us let's start off real quick. What does Ramball do?
19:58
Speaker 1: What are you guys doing over there?
20:00
Speaker 11: Yeah, thanks for inviting me. Ramble is a consulting company
20:05
Speaker 11: and engineering company as well, and we do a lot
20:08
Speaker 11: of environmental health sciences and other types of sciences.
20:13
Speaker 7: So what does that I mean?
20:16
Speaker 2: Do you like measure the hole in the ozone or
20:18
Speaker 2: what kind of sciences are we talking about.
20:21
Speaker 11: So we do a lot of different things, but I
20:23
Speaker 11: personally work heavily on biodiversity and ecosystem services. So we
20:28
Speaker 11: help our clients meet their sustainability goals in a variety
20:31
Speaker 11: of different ways and help them increase biodiversity on their sites,
20:35
Speaker 11: and you know, form the goals that will help them
20:37
Speaker 11: reach these reach the points they want to get to.
20:40
Speaker 1: And so what is the kind of the business case
20:43
Speaker 1: for this? When you go talk to your clients, how
20:47
Speaker 1: do you frame it? How do they think about it?
20:50
Speaker 11: Well, the business case is that, unfortunately, nature isn't an
20:53
Speaker 11: unlimited resource, even though our financial markets have treated it
20:56
Speaker 11: that way in the past. For example, of polony disappear,
21:00
Speaker 11: most humans are going to starve because seventy five percent
21:03
Speaker 11: of our crops rely on pollinators. So I mean the
21:06
Speaker 11: business cases that are businesses in our societies depend upon
21:10
Speaker 11: natural resources and when those resources disappear, businesses are affected.
21:14
Speaker 11: So this is we can already see this happening with
21:18
Speaker 11: the increase in extreme weather events and the resulting increase
21:21
Speaker 11: in insurance premium.
21:23
Speaker 2: So who but who are your I mean, I think
21:25
Speaker 2: we all agree with you there, yep. I think about
21:30
Speaker 2: the bees a lot for example, But what can we
21:33
Speaker 2: do about it? I mean, who are for example, your clients.
21:37
Speaker 2: Are they small and medium sized businesses? Bigger businesses? Do
21:41
Speaker 2: they have a lot of land?
21:43
Speaker 10: Is it? You know?
21:44
Speaker 7: Can they plant things? Can they? I don't know, hunt,
21:47
Speaker 7: what's what's the idea?
21:51
Speaker 11: Well, the idea is that, I mean, all businesses can
21:54
Speaker 11: contribute whatever their size. My clients are small businesses to
21:57
Speaker 11: very large businesses. The larger ones do tend to own
22:00
Speaker 11: a lot of land, and some of that land has
22:03
Speaker 11: been contaminated in the past, often from historical you know,
22:07
Speaker 11: historical events before people knew that they were doing this
22:10
Speaker 11: contamination before there were logs to control it, and they're
22:13
Speaker 11: trying to clean that up and they're trying to improve
22:15
Speaker 11: biodversity on those sites. In other cases, there are clients
22:19
Speaker 11: that just want to contribute more and want to build
22:22
Speaker 11: their image and you know, their social license and so
22:25
Speaker 11: then they want to increase nature on their properties as well.
22:28
Speaker 11: But you don't have to have large properties to do that, right,
22:31
Speaker 11: You can do that in your small building too.
22:33
Speaker 1: How do you, I mean, do you make a distinction
22:35
Speaker 1: between nature and climate change and climate action?
22:42
Speaker 11: Nature and climate are really intertwined Basically, there's pretty good
22:47
Speaker 11: agreement that we're not going to reach our climate goals
22:50
Speaker 11: unless we're also striving for nature goals. So plants and
22:54
Speaker 11: alga they pull, they pull greenhouse gases out of the air.
22:58
Speaker 11: And if we're just trying to douse greenhouse gases without
23:01
Speaker 11: you know, increasing the area of habitat for these species,
23:04
Speaker 11: then we're not going to really have great success.
23:07
Speaker 1: So what are the types of companies that you think
23:10
Speaker 1: are doing a good job, not by industry, but just
23:13
Speaker 1: kind of what kind of success stories do you find
23:16
Speaker 1: and maybe what are some of the frustrations that you
23:17
Speaker 1: have when you go out and talk to different types
23:19
Speaker 1: of companies.
23:22
Speaker 11: I mean the successes that I find a typically it's
23:25
Speaker 11: individuals within companies that are just really motivated and are
23:28
Speaker 11: really being a force for change within their company to
23:31
Speaker 11: make like the small decisions that add up over time,
23:34
Speaker 11: and you know, as they're having successful projects, then others
23:37
Speaker 11: in their company are seeing that and getting on the bandwagon. So,
23:40
Speaker 11: for example, companies that are using nature based solutions instead
23:44
Speaker 11: of standard environmental solutions, and that often comes down to
23:48
Speaker 11: individual project managers making those decisions.
23:52
Speaker 2: How much of a concern is greenwashing you know, I
23:58
Speaker 2: I think, you know, we have the same concerns, and
24:01
Speaker 2: so I will, you know, do what I can to recycle,
24:04
Speaker 2: for example, or to buy recycled materials.
24:07
Speaker 7: But I don't ever know, uh, you.
24:09
Speaker 2: Know, what's happening once I put my cans in the
24:12
Speaker 2: aluminum bin and my paper in the in that box.
24:15
Speaker 2: You know, it's kind of hard to see what happens
24:18
Speaker 2: when it moves down the line.
24:22
Speaker 11: Yeah, I mean there's some concern for greenwashing. There are
24:26
Speaker 11: frameworks out now, like the TNFD which just opened let's
24:31
Speaker 11: just just launch last week. That's a task force Nature
24:33
Speaker 11: Related Financial Disclosures. These kind of frameworks can help companies
24:38
Speaker 11: really systematically look at what their dependencies and their impacts
24:42
Speaker 11: are to nature and to report those in really clear ways.
24:45
Speaker 11: And so the you know, the uptake of this kind
24:48
Speaker 11: of disclosure method, it's going to help a lot with greenwashing.
24:52
Speaker 1: That's kind of where I wanted to go here here Bloomberg.
24:55
Speaker 1: At least we're big on data, and I know there's
24:58
Speaker 1: been when I talk to investors that and maybe invest
25:01
Speaker 1: in an ethical way focusing on ESG just broadly defined.
25:06
Speaker 1: One of their concerns is they just don't have as
25:08
Speaker 1: much data as they would like. The disclosure is not
25:10
Speaker 1: consistent across companies and industries. It differs even from the
25:14
Speaker 1: US versus non US. Where are we just in terms
25:18
Speaker 1: of kind of getting companies to think about, you know,
25:21
Speaker 1: good disclosure.
25:24
Speaker 11: Well, some disclosure is required now, especially in Europe there
25:27
Speaker 11: are the Corporate Sustainability Reporting Directive is going to be
25:31
Speaker 11: requiring disclosures. And that's not just for European companies, that's
25:36
Speaker 11: also for any well large companies typically that have a
25:40
Speaker 11: presence in Europe, so that is going to be required soon.
25:45
Speaker 11: There are also these voluntary disclosing measures like TNFD or
25:48
Speaker 11: science based Targets for nature that companies are taking up.
25:52
Speaker 11: I mean, I think basically this is just getting to
25:53
Speaker 11: that investors want to know what the risks are that
25:56
Speaker 11: their investments are actually you know, taking into consideration what
26:01
Speaker 11: their dependencies are in nature, and they're preparing for that
26:04
Speaker 11: so that investors are not making a bad investment, but
26:08
Speaker 11: they're taking a big risk.
26:10
Speaker 2: You mentioned that we won't meet our I guess temperature
26:14
Speaker 2: goals if we don't have the kind of biodiversity that's
26:18
Speaker 2: necessary in our ecosystems. Are you confident that we're making
26:22
Speaker 2: real progress here.
26:25
Speaker 11: I mean I think we are making real progress. I
26:28
Speaker 11: don't think we're making enough progress unfortunately.
26:31
Speaker 1: All right, list thanks so much for joining us. This
26:34
Speaker 1: is a big, big issue for a lot of companies
26:36
Speaker 1: and a lot of investors and for the markets in general.
26:38
Speaker 7: Doctor LESE.
26:38
Speaker 1: Castillo Neilis. She's a biodiversity and ecosystems senior manager at
26:43
Speaker 1: Ramboll trying to work with companies to I guess a
26:47
Speaker 1: lot of things, but just kind of interact better with nature,
26:49
Speaker 1: reduced the carbon footprint.
26:51
Speaker 8: You're listening to the team Ken's are Live program Bloomberg
26:55
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg dot Com,
26:58
Speaker 8: the iHeartRadio app and the Bloomberg Business at or listening
27:01
Speaker 8: on demand wherever you get your podcasts.
27:05
Speaker 1: Let's check in with a player out there in the business.
27:08
Speaker 1: David Rainey. He's a portfolio manager at Hennessy Focus Funds.
27:12
Speaker 1: He's been in the business a while, but of course
27:14
Speaker 1: the absolute highlight of his resume is his MBA from
27:18
Speaker 1: the Fucal School of Business at Duke University, part of
27:21
Speaker 1: the great Class of nineteen ninety one. David Rainey, how
27:25
Speaker 1: are you doing, my friend?
27:28
Speaker 10: Good to talk to you, Paul David.
27:30
Speaker 1: Let's step back here a little bit here, what's your
27:32
Speaker 1: market call here? There's a lot of crosswinds for investors
27:36
Speaker 1: to deal with, a lot of headwinds. Quite quite frankly,
27:38
Speaker 1: how are you guys just kind of viewing this market here?
27:43
Speaker 10: Well, you know, we're long term oriented investors and we've
27:49
Speaker 10: always taken a business owner's perspective and invest in in
27:53
Speaker 10: public equities. And you know, we approach every investment, whether
27:57
Speaker 10: it's in the founder on our watch list, as if
27:59
Speaker 10: we're going to own indefinitely. I mean, clearly, what has
28:02
Speaker 10: the market all shook up today and over the past
28:06
Speaker 10: year or two is inflation, the rise and rates and
28:10
Speaker 10: what's that doing to low and moderate income Americans? And
28:13
Speaker 10: is doing a lot, and so we're sensitive to that.
28:16
Speaker 10: We don't think we have a lot of exposure to
28:20
Speaker 10: businesses and products and services companies that have a ton
28:25
Speaker 10: of low and moderate income exposure, but we're aware of it.
28:29
Speaker 10: And you know, traditionally that's the class of Americans that
28:33
Speaker 10: tend to take it on the chin more so than others.
28:37
Speaker 10: And so you know, but if I step back and
28:42
Speaker 10: I have excuse me, a little bit of gray hair.
28:45
Speaker 10: I look back at it said funds rate fifteen twenty
28:51
Speaker 10: twenty five, thirty years ago two three four percent, and
28:55
Speaker 10: I look at a tenure treasury and it would have
28:58
Speaker 10: had a four or five or six handle as well.
29:00
Speaker 10: And so what's going on with the eel curve. The
29:03
Speaker 10: level and the shape of the curve isn't surprising. As
29:06
Speaker 10: we normalize, I guess we're kind of back to the
29:09
Speaker 10: new normal and that's what the market's waking up to.
29:13
Speaker 1: So when you think about long term investing, I would
29:15
Speaker 1: think that management quality really getting a good handle on
29:20
Speaker 1: management their ability to redeploy capital, grow the business generator returns.
29:24
Speaker 1: That would be top top of the list of the
29:26
Speaker 1: things you look at. How do you assess management quality?
29:31
Speaker 10: Yeah, but we actually take a criteria driven approach. We
29:35
Speaker 10: have key five key criteria and you hit it on
29:39
Speaker 10: the head. Management is one of those five. We look
29:42
Speaker 10: at the business model, its ability to generate attractive returns
29:45
Speaker 10: on the invested capital. We look at management and you
29:49
Speaker 10: can't screen for management quality. This isn't something that pops
29:54
Speaker 10: up on a screen and tells you to take a
29:56
Speaker 10: better look that. We look for managers that are good
29:59
Speaker 10: at running the business day to day and investing the
30:03
Speaker 10: businesses free cash flow back into it to grow the
30:07
Speaker 10: firm's economic value. We also look at the reinvestment opportunities
30:12
Speaker 10: that are out there. We look at valuation, and then
30:15
Speaker 10: finally tail risk. Wh's the likelihood that this compounder gets
30:20
Speaker 10: upset because of the balance sheet issue, fat or fashion,
30:25
Speaker 10: this type of thing. But you're absolutely right. If you're
30:27
Speaker 10: going to own a stock for more than a quarter
30:30
Speaker 10: or two, management is one of the key considerations to
30:34
Speaker 10: make before you put money at risk.
30:38
Speaker 1: I look at some of the names that you guys own,
30:40
Speaker 1: and a couple jump out of me, most notably because
30:42
Speaker 1: they're both in the from Richmond, Virginia, place very near
30:46
Speaker 1: and dear to my heart. Here, let's start with Carmacks,
30:48
Speaker 1: because that's in the news here today. Talk to us
30:50
Speaker 1: about what you heard from Carmacks and how that may
30:53
Speaker 1: impact your thesis of this name.
30:57
Speaker 10: Well, I mean again, you kind of step back and
31:01
Speaker 10: you look at what happened with COVID. I mean, there
31:04
Speaker 10: was a time when CarMax was trading I think back
31:08
Speaker 10: in February or March of twenty twenty at very distress levels,
31:12
Speaker 10: almost as if there was an existential threat in the
31:15
Speaker 10: business was going to evaporate. Fast forward to today, they've
31:20
Speaker 10: made enormous progress with their omni channel initiative. They're the
31:26
Speaker 10: country's largest used car dealer or retailer retailer and its
31:31
Speaker 10: differentiated business model is based on providing better customer a
31:37
Speaker 10: better customer experience by having a large selection of high
31:41
Speaker 10: quality row mileage cars across a nationwide network and no
31:48
Speaker 10: haggle prizes. And what we've seen during our holding period
31:51
Speaker 10: in Carmacks we voted for over a decade, is that
31:54
Speaker 10: they've steadily taken market share because of their better customer experience.
31:58
Speaker 10: And so we think that they're doing all the things
32:01
Speaker 10: today as the market as they're kind of bumping along
32:05
Speaker 10: at the bottom, so to speak, at growing a better
32:12
Speaker 10: customer experience, particularly through omnichannel, which is the ability to
32:16
Speaker 10: seamlessly connect what happens at a store with what a
32:20
Speaker 10: customer wants to do online and bringing that all together.
32:25
Speaker 10: And so, you know, CarMax is a name that we
32:27
Speaker 10: think we'll recover nicely as used car sales pick up.
32:32
Speaker 10: Typically in the US in any given year, about forty
32:37
Speaker 10: million used cars are sold. We're probably bumping around at
32:41
Speaker 10: about thirty five million this year because of the pull
32:44
Speaker 10: forward over COVID, and we think that as CarMax works
32:50
Speaker 10: its way out of this macro environment, that there's two
32:55
Speaker 10: to four dollars of hidden earnings power in the stock.
32:59
Speaker 10: So I think consensus about three dollars three dollars and
33:03
Speaker 10: twenty cents this year. There's another two to four dollars
33:06
Speaker 10: as the market recovers and they see very good incrementals
33:10
Speaker 10: on the growing sales.
33:12
Speaker 1: Thirty seconds Dave Real Quick, Markell Corporation, another Richmond company.
33:17
Speaker 10: Yeah, rich and Days. Property Casualty specially property casualty insurance
33:22
Speaker 10: company with important holdings and public equities and control positions
33:28
Speaker 10: in private businesses. Many people talk about it in terms
33:32
Speaker 10: of Berkshire halfway describe it as a baby Berkshire. We're
33:36
Speaker 10: very excited about Markel's opportunity going forward. Well, property casualty
33:42
Speaker 10: insurance is a h single digit return on equity business,
33:47
Speaker 10: but they have consistently generated low double digit to mid
33:50
Speaker 10: teams because of their equity positions in both the public
33:54
Speaker 10: markets and now a growing private portfolio. So we're very
33:59
Speaker 10: very excited.
34:00
Speaker 1: It's kind of got a Berkshire kind of stock. Price
34:02
Speaker 1: fifteen hundred bucks a share. Very interesting. David Rainey, thanks
34:04
Speaker 1: so much for joining us. Dave Rainy, he's a portfolio
34:06
Speaker 1: manager at Hennessy Focus Fun. I'll see you hopefully down
34:10
Speaker 1: at Duke.
34:11
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34:14
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34:18
Speaker 2: podcast platform you prefer.
34:19
Speaker 7: I'm Matt Miller.
34:21
Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three.
34:24
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34:26
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34:29
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