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Thomas Wagner on Sports Investing With Tom Brady · Masters in Business

• 0:02
  Speaker 1: This is Master's in Business with very rid Holds on
• 0:06
  Speaker 1: Bloomberg Radio.
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  Speaker 2: This week on the podcast, I have an extra special guest,
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  Speaker 2: Tom Wagner, co founder and portfolio manager at Nighthead Capital.
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  Speaker 2: They run about ten billion dollars across all sorts of
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  Speaker 2: really fascinating investing lines. Not only do they do distressed
• 0:25
  Speaker 2: investing and deep value investing, but they have an insurance business,
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  Speaker 2: they have a sports practice. They really look anywhere and everywhere.
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  Speaker 2: Talk about an unconstrained fund that can just find opportunities
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  Speaker 2: in all sorts of ways. Not only do they buy
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  Speaker 2: sports teams and have been really pushing the envelope in
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  Speaker 2: things like buying soccer clubs in the UK, investing in
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  Speaker 2: pickle bowl in the United States, investing in endurance racing
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  Speaker 2: around the world, but they also run a long short
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  Speaker 2: fund and find opportunities and things like HERTZ, which was
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  Speaker 2: a deep value bankruptcy investment or PG and E in
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  Speaker 2: California post campfire, where there was all sorts of regulatory
• 1:17
  Speaker 2: and litigation risk. Just a fascinating approach to understanding value investing,
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  Speaker 2: understanding how to allocate capital and take risks. I thought
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  Speaker 2: this was a fascinating conversation, and I think you will
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  Speaker 2: also with no further ado, my discussion with Nighthead Capitals.
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  Speaker 2: Tom Wagner. Tom Wagner, Welcome to Bloomberg.
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  Speaker 1: Thank you, Berry. I appreciate being her.
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  Speaker 2: I'm glad to have you. Your background is quite fascinating, and
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  Speaker 2: I'm just going to do this chronologically, otherwise I'll reveal
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  Speaker 2: all of my personal biases. You start out spending five
• 1:55
  Speaker 2: years that Ernst and Young doing hedge fund accounting, like
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  Speaker 2: I didn't even know that is a thing ATY. And
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  Speaker 2: why tell us a little bit about how you got started.
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  Speaker 1: Yeah, I started as a as a certified public accountant,
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  Speaker 1: and one of the early engagements that I was tasked
• 2:12
  Speaker 1: with was in the space of asset management. And I
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  Speaker 1: recall doing the audit on Jeffrey Vinnick's very first year
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  Speaker 1: as a hedge fund man.
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  Speaker 2: Post Fidelity posts Magellan.
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  Speaker 1: Funds exactly, and he had a sizeable amount of money
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  Speaker 1: under management, and you know, hard closed his vehicle and
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  Speaker 1: in his first fourteen months, if I remember correctly, his
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  Speaker 1: gross return was one hundred and twenty percent, not too shabby,
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  Speaker 1: not too bad.
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  Speaker 2: And that's two and twenty right, So there's some upside there.
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  Speaker 1: It was indeed, and I said, what is this business
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  Speaker 1: that this gentleman is in, and how do I get involved?
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  Speaker 2: I am wasting my life as an accountant. I gotta
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  Speaker 2: I gotta see a different Working for the man is
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  Speaker 2: no good, No.
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  Speaker 1: It's it's And you know, it was a great you know,
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  Speaker 1: doing accounting and being a CPA had its benefits. You
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  Speaker 1: learn the language of business, and you learn how to
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  Speaker 1: operate in a business environment. There are a lot of
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  Speaker 1: great takeaways from that experience. But I you know, at
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  Speaker 1: that point in time, I think I recognized something else
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  Speaker 1: was drawing me.
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  Speaker 2: I got to think, eleven thousand hedge funds out there,
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  Speaker 2: not a lot are run by somebody who spent a
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  Speaker 2: big chunk of time really seeing the ins and outs
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  Speaker 2: of hedge fund accounting. I mean, you're a pretty rare bird.
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  Speaker 1: I think that's probably right. Most guys and gals who
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  Speaker 1: get into the business of working at a hedge fund,
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  Speaker 1: never mind you know, founding and running one. Yeah. I
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  Speaker 1: think there's a pretty typical track where they're finance majors
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  Speaker 1: at top schools. They they work at an investment bank
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  Speaker 1: or an advisory bank, sometimes at a law firm, and
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  Speaker 1: then they make their way into the investing realm. Mine.
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  Speaker 1: You know, I started in a much more boring and
• 4:02
  Speaker 1: you know that I ended up in public accounting for
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  Speaker 1: a variety of reasons. You know, I started my college
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  Speaker 1: career as an engineering major.
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  Speaker 2: Right as did I.
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  Speaker 1: That's really interesting and I and I got into my
• 4:12
  Speaker 1: junior year and I just really didn't like it. And
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  Speaker 1: we had a career day and everybody who came in
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  Speaker 1: was miserable in their jobs. And I was like, what
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  Speaker 1: am I torturing myself for? My friends are having a
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  Speaker 1: blast in college. I'm studying all the time. And I
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  Speaker 1: had a bit of an epiphany that that perhaps, you know,
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  Speaker 1: if I didn't love it, there was a better path,
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  Speaker 1: And so I switched to accounting because the most successful
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  Speaker 1: person I knew directly was my uncle, who was a
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  Speaker 1: partner in a public accounting firm. And I, you know,
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  Speaker 1: I looked at him and said, there's a there's a
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  Speaker 1: guy that did well with this. You know, I'll give
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  Speaker 1: it a shot.
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  Speaker 2: You mentioned business schools. You end up going to Columbia
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  Speaker 2: B School, and I know these are two year programs,
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  Speaker 2: but explain to me how during your second year Columbia
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  Speaker 2: you were also working full time at Credits with first boss,
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  Speaker 2: and how can you jo both of those?
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  Speaker 1: Well, you know, I think a lot of times in
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  Speaker 1: life you're faced with a situation where if you're trying
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  Speaker 1: to achieve your objective, that you have to find a
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  Speaker 1: path irrespective of what sacrifices you have to make to
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  Speaker 1: allow you to attain that objective. And you know, when
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  Speaker 1: I was in business school from ninety seven to ninety nine,
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  Speaker 1: we had kind of a hiccup in the markets in
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  Speaker 1: the fall of ninety eight.
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  Speaker 2: That Long Term Capital Management and the Roughs Act default.
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  Speaker 1: And it was really you know, when I was an
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  Speaker 1: intern at Credit SUITEE, it was a highly volatile environment.
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  Speaker 1: We were expecting offers in the fall, and none were
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  Speaker 1: really forthcoming in the areas where I wanted to work,
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  Speaker 1: which was in the high yield department in the sales
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  Speaker 1: and trading desk. And so I had a mentor on
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  Speaker 1: the desk who was a few years ahead of me,
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  Speaker 1: and said, why don't you start coming in and doing
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  Speaker 1: research for me on the side. You know, we'll pay
• 5:54
  Speaker 1: you some nominal sum. I mean, I don't know. It
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  Speaker 1: wasn't minimum wage, but it wasn't a lot more than that,
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  Speaker 1: and once I was in the door, I was there
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  Speaker 1: every moment I wasn't in class, and so I was
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  Speaker 1: doing thirty forty hours a week on the desk doing research. One,
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  Speaker 1: I needed the money because I was, you know, not
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  Speaker 1: in a position where I could rely on outside sources
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  Speaker 1: for income. And two, you know, it was direct experience
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  Speaker 1: and I was a career changer. I went back to
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  Speaker 1: business school to prosecute my path of moving from public
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  Speaker 1: accounting into the capital markets. So I needed the degree.
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  Speaker 1: I needed the transition period, and you know that that
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  Speaker 1: allowed me the ability to gain a lot of experience
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  Speaker 1: directly that I felt I needed to have a leg
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  Speaker 1: up and ultimately get a job, which which fortunately I did.
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  Speaker 2: Was that at Credits was first Boston And how long
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  Speaker 2: did you stay there?
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  Speaker 1: Yeah, so I was at Credit, Sueese, I guess, you know,
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  Speaker 1: you could say I started just after my internship finished,
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  Speaker 1: and I was there until the fall of two thousand
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  Speaker 1: when I received a call from somebody at Goldman Sachs
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  Speaker 1: on their desk that I had met and cajoled me
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  Speaker 1: into coming into interview for a spot on the distressed
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  Speaker 1: debt trading desk.
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  Speaker 2: And you had not done distress debt prior.
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  Speaker 1: You know, I was, I was a regular way high
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  Speaker 1: yield trader and I was happy at Credit Sweez. I thought,
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  Speaker 1: I you know, I had my own trading book. I
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  Speaker 1: was thrilled. I love the team that I worked with there.
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  Speaker 1: I mean really, to this day, I remained very friendly
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  Speaker 1: with a lot of those folks. I felt very fortunate
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  Speaker 1: to be on that team. But two things happened. One,
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  Speaker 1: Credit Sweee bought DLJ and I had to interview to
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  Speaker 1: keep my job, which thankfully I did. And two, you know,
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  Speaker 1: I had an opportunity to meet with the folks at
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  Speaker 1: Goldman and the distressed debt trading desk at Goldman had
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  Speaker 1: a particularly colorful lineage. You know, there was you know,
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  Speaker 1: there was a group of people that had had that
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  Speaker 1: job and went on to some spectacular success. I mean,
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  Speaker 1: you know, the likes of David Tepper and John Colatch
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  Speaker 1: and John Savatz, who was there the person that hired me.
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  Speaker 1: And it was so it was a really impressive group
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  Speaker 1: of people that had run that desk prior to my arrival,
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  Speaker 1: and I was it was very alluring to think about
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  Speaker 1: trading in companies that were facing their worst moment.
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  Speaker 2: So I always think of high yield as sort of
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  Speaker 2: the precursor to distress that I don't know if that's
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  Speaker 2: sort of oversimplifying it, but it seems like a lot
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  Speaker 2: of what we call high yield and used to call junk,
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  Speaker 2: and some of it ends up in a decent amount
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  Speaker 2: of it ends up in the junk drawer. Tell us
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  Speaker 2: a little bit about how you see that transition there.
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  Speaker 1: Yeah, most companies that end up in distressed are very
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  Speaker 1: levered at the outset, so they have a sub investment
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  Speaker 1: grade or junk or high yield rating, depending on what
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  Speaker 1: terminology you want to use. And you know, those are
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  Speaker 1: the companies that are most likely to face severe financial
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  Speaker 1: stress because they have the biggest stock of debt, they
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  Speaker 1: have the least financial flexibility. But there are companies, and
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  Speaker 1: this was particularly true in the early days of my career,
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  Speaker 1: that go from investment grade right into distress. And there
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  Speaker 1: are a variety of reasons why that occurred in nearly
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  Speaker 1: two thousands, but that for me was an area where
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  Speaker 1: I gained exposure to really marquee companies that were priced
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  Speaker 1: as if they were going out of business or would liquidate.
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  Speaker 1: And as we all know, you know, most companies that
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  Speaker 1: go into bankruptcy don't liquidate, they don't go away. They
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  Speaker 1: just restructure their balance sheet, and if they're smart, they
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  Speaker 1: restructure their operations as well to fix the issues that
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  Speaker 1: ultimately led them getting into bankruptcy.
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  Speaker 2: So you mentioned the era was the early two thousands.
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  Speaker 2: What was the fallout from the dot com enplosion. Did
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  Speaker 2: this create a target rich environment or did it just
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  Speaker 2: make things more challenging.
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  Speaker 1: Well, you know, here's the reality of distressed investing. Whenever
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  Speaker 1: there's a period of time in the markets where there's upheaval,
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  Speaker 1: it creates opportunity. And for me, you know, I was
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  Speaker 1: not somebody that grew up in a financially comfortable environment,
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  Speaker 1: and so I think I was drawn to being involved
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  Speaker 1: in companies that were experiencing difficulty. There's also the reality
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  Speaker 1: of being in that seat on the cell side working
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  Speaker 1: for a bank. Is when the markets are really disrupted,
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  Speaker 1: is when banks usually lay people off, but not their
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  Speaker 1: distress team.
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  Speaker 2: That's your glory days, right, the worst the economy, and no.
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  Speaker 1: One gets laid off when everything's going well. So I
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  Speaker 1: had a lot of job security. So for my early days,
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  Speaker 1: it was a risk averse way of being in the
• 10:47
  Speaker 1: capital markets.
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  Speaker 2: That's very amusing. How long were you on the desk
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  Speaker 2: at Gulman.
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  Speaker 1: For just under eight years? So I left in early
• 10:55
  Speaker 1: two thousand and eight. And my experience there, you know,
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  Speaker 1: similar to my experience at Credit Suee, was really fantastic
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  Speaker 1: and it was driven by the people around me. When
• 11:09
  Speaker 1: we go back and look at the team that we
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  Speaker 1: had assembled in the early two thousands in the Goldman
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  Speaker 1: Sachs distressed trading desk, an extraordinary number of those folks
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  Speaker 1: went on to become partners and founders of very successful
• 11:26
  Speaker 1: multi billion dollar asset management firms. It's a pretty unparalleled
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  Speaker 1: track record for a group of professionals that were together
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  Speaker 1: at one time, and for me, that was incredibly valuable.
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  Speaker 1: I was surrounded by people that were more experienced than I,
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  Speaker 1: that were in my mind, smarter than I, and were
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  Speaker 1: you know, every bit is motivated, and that's a great
• 11:52
  Speaker 1: environment to become an expert in a particular industry. I
• 11:56
  Speaker 1: very very fortunate to have been able to work in
• 12:00
  Speaker 1: that environment with those people, you know, really enormously talented individuals.
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  Speaker 2: So you're there for eight years. What stands out as
• 12:09
  Speaker 2: some really interesting trade, some distressed opportunities? What were some
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  Speaker 2: of the memorable moments on the Goldman Sachs distressed debt
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  Speaker 2: trading desk.
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  Speaker 1: Well, I'll start with sort of my first impression. I get,
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  Speaker 1: you know, Credit Sueee. There was a hard working but
• 12:25
  Speaker 1: also a you know, a kind of a collegial, fun
• 12:29
  Speaker 1: loving group of people. And I get to Goldman and
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  Speaker 1: I was at that time, you know, I was a
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  Speaker 1: subscriber to the When you're the junior person on the
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  Speaker 1: desk or the institution, you at first went in. So
• 12:40
  Speaker 1: I'd be at my desk at six forty five in
• 12:43
  Speaker 1: the morning typically, And I remember the first day I'm
• 12:47
  Speaker 1: there and it's it's dark outside because it's you know,
• 12:49
  Speaker 1: it's late, it's mid fall, and I'm like, wow, it's
• 12:53
  Speaker 1: really noisy in here. And I look around and ninety
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  Speaker 1: percent of the people are still at their desk at
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  Speaker 1: six thirty at night. And I thought to myself, oh boy,
• 13:02
  Speaker 1: I'm in a different environment. And people, you know, they
• 13:05
  Speaker 1: worked hard, and they worked late and in positions where
• 13:08
  Speaker 1: you didn't often see that, meaning a lot of folks
• 13:10
  Speaker 1: on a trading desk get up and walk out, you know,
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  Speaker 1: thirties minutes sixty minutes after the market's closed. This was
• 13:16
  Speaker 1: a group of people that were sticking around and continuing
• 13:19
  Speaker 1: to work, and that really resonated with me, and I
• 13:22
  Speaker 1: was like, oh my gosh, this is going to be
• 13:24
  Speaker 1: a whole different experience, and I'm in for a ride.
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  Speaker 1: And sure enough it was. You know, we had a
• 13:28
  Speaker 1: lot of a lot of late nights. Equally, I was
• 13:32
  Speaker 1: also trying to become acquainted with the people that were
• 13:36
  Speaker 1: my customers, who are the asset managers, both on mutual funds,
• 13:41
  Speaker 1: insurance companies, hedge funds, private equity firms that were our counterparties,
• 13:44
  Speaker 1: and so I spent a lot of time going out.
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  Speaker 1: There was a gentleman who ran sales that literally introduced
• 13:50
  Speaker 1: me to everybody in the industry, and four nights a
• 13:52
  Speaker 1: week we were out to dinner, you know, entertaining customers,
• 13:56
  Speaker 1: getting to know them, talking about the markets. And that
• 13:59
  Speaker 1: was credible education for me. So, in addition to being
• 14:02
  Speaker 1: surrounded by great people at work all day, I'm now
• 14:05
  Speaker 1: out with folks that would become the titans of the
• 14:09
  Speaker 1: credit markets that were in the early days or midway
• 14:12
  Speaker 1: through the founding of their businesses and talking about the markets.
• 14:15
  Speaker 1: It was a really valuable set of experiences. For me,
• 14:19
  Speaker 1: So those things definitely stand out. But I think when
• 14:21
  Speaker 1: I think about the markets at that point in time,
• 14:24
  Speaker 1: there are certainly a couple of things that stand out enormously,
• 14:27
  Speaker 1: the biggest obviously being nine to eleven, and you know,
• 14:32
  Speaker 1: we were on the trading floor and I distinctly recall
• 14:36
  Speaker 1: seeing piece of paper floating by our window at eighty
• 14:40
  Speaker 1: five Broad Street and then turning to my colleagues and saying,
• 14:42
  Speaker 1: some of those pages are singed, and then we all
• 14:45
  Speaker 1: know what transpired thereafter. We had, you know, sadly a
• 14:50
  Speaker 1: front row seat to everything that occurred after the first
• 14:53
  Speaker 1: plane went in, and then the markets afterwards were obviously
• 14:58
  Speaker 1: heavily disrupted. The our country was heavily disrupted. But I
• 15:02
  Speaker 1: remember getting on the phone the first day the market's
• 15:06
  Speaker 1: reopened with the first phone calls from Fidelity and they said,
• 15:11
  Speaker 1: you know, buyers only today, really, yeah, and it was
• 15:15
  Speaker 1: it was sort of a theme across the market that
• 15:19
  Speaker 1: really stands out to me even today, where you know,
• 15:23
  Speaker 1: for the first day, nobody was really unless they had to,
• 15:27
  Speaker 1: no one was selling. And that really really stands out
• 15:31
  Speaker 1: for me because you know, we all lost, you know,
• 15:34
  Speaker 1: a lot of friends that day and so that that
• 15:38
  Speaker 1: was an incredibly memorable moment. I'd say. The other one
• 15:42
  Speaker 1: that really stands out as well was the day that
• 15:45
  Speaker 1: that WorldCom fell as a result of a report that
• 15:50
  Speaker 1: was put out on a competing network, and you know,
• 15:53
  Speaker 1: I had I had been at work early that morning.
• 15:56
  Speaker 1: We traded until you know, normal time, and the news
• 16:00
  Speaker 1: hit just after the close, and I ended up trading
• 16:03
  Speaker 1: until midnight, went home, slept for a couple of hours.
• 16:07
  Speaker 1: I was back at my seat at like three thirty
• 16:09
  Speaker 1: or four o'clock in the morning, and I traded that
• 16:11
  Speaker 1: following night until eight thirty in the evening.
• 16:13
  Speaker 2: Wow.
• 16:13
  Speaker 1: And it was the most profitable day of trading I'd
• 16:15
  Speaker 1: ever had, no kid, and it was it was the
• 16:18
  Speaker 1: busiest day I'd ever had. It was literally, you know,
• 16:20
  Speaker 1: a trading floor with I don't know how many hundreds
• 16:22
  Speaker 1: of people, and because of what had happened, the person
• 16:26
  Speaker 1: trading that name became the center of attention. So everyone
• 16:29
  Speaker 1: was looking at, you know, whether the price of those
• 16:32
  Speaker 1: world combounds going up or down, or who was buying,
• 16:34
  Speaker 1: who was selling, what kind of size was trading. It
• 16:37
  Speaker 1: was an incredibly intense period, but it was probably the
• 16:40
  Speaker 1: most enjoyable. You know, thirty six hours of my professional career,
• 16:44
  Speaker 1: because you know, it was just so exciting.
• 16:46
  Speaker 2: You're in fighter pilot mode. Does you're not even thinking,
• 16:49
  Speaker 2: You're just responding to three sixty input.
• 16:52
  Speaker 1: Yeah, constant, and my second command, if you will to
• 16:59
  Speaker 1: trade on the trading day ask you know it is
• 17:00
  Speaker 1: now a very successful manager of a hedge bond and
• 17:04
  Speaker 1: he and I joke about it to this day and
• 17:06
  Speaker 1: how crazy that day was, and so you know, I,
• 17:10
  Speaker 1: you know, that stands out just because of the enormity
• 17:12
  Speaker 1: of the surprise in the market for a single name,
• 17:15
  Speaker 1: and you know, the bonds in that company fell fifty
• 17:19
  Speaker 1: sixty seventy points depending on which bond flavor it was,
• 17:23
  Speaker 1: meaning which duration bond instantaneously, and you know, you're talking
• 17:27
  Speaker 1: about wiping out billions and billions of dollars of capital,
• 17:30
  Speaker 1: and it was just a huge shock to the market.
• 17:33
  Speaker 1: So you know, those are those are two of many
• 17:36
  Speaker 1: days that really stand out in my mind.
• 17:38
  Speaker 2: And world come perhaps different than on N Run or
• 17:43
  Speaker 2: something like that. Clearly valuable assets just I think that
• 17:47
  Speaker 2: was an accounting from Bernie Ebers and Jack Solomon and
• 17:51
  Speaker 2: all that crazy stuff that took place. So you end
• 17:53
  Speaker 2: up Jack Grugman, who is at Solomon right, I think
• 17:57
  Speaker 2: was the acts on that stock. So you're looking at
• 18:00
  Speaker 2: this saying, hey, you know, at one hundred cents on
• 18:03
  Speaker 2: the dollar, these are disasters, but at thirty cents on
• 18:06
  Speaker 2: the dollar.
• 18:08
  Speaker 1: Ten cents on the dollar are very valuable. The MCI
• 18:11
  Speaker 1: bonds were very valuable, if I remember, they got as
• 18:13
  Speaker 1: low as the twenties or low thirties, and the recoveries
• 18:17
  Speaker 1: were quite high. You know, people say that it was
• 18:20
  Speaker 1: an accounting fraud. It was in the sense that they
• 18:25
  Speaker 1: were misrepresenting the facts. But the information was there, as
• 18:31
  Speaker 1: is the case in many of these situations, if you
• 18:33
  Speaker 1: dug deep enough, you could figure out relatively quickly what
• 18:37
  Speaker 1: was going on. And you know, but there were a
• 18:39
  Speaker 1: lot of companies that were over levered and perhaps over promoted,
• 18:43
  Speaker 1: but where there was real underlying value. You know, Enron
• 18:47
  Speaker 1: as another great example, another you know, huge opportunity at
• 18:51
  Speaker 1: that point in time. Less so with some of the
• 18:54
  Speaker 1: telecom names and so really well, you know, you had
• 18:57
  Speaker 1: a lot of businesses. You know one that you know
• 19:01
  Speaker 1: that stands out. Oh, I'm going to blank on the name.
• 19:05
  Speaker 2: It just gets worse.
• 19:06
  Speaker 1: Get it is. Now there's so many hundreds of names
• 19:10
  Speaker 1: banging around in the small brain of mind.
• 19:12
  Speaker 2: Once that hard drive fills up.
• 19:15
  Speaker 1: Something else has to give way. But what you know,
• 19:18
  Speaker 1: with a lot of the companies in that time, they
• 19:21
  Speaker 1: were building capacity that was unneeded. Technology was advancing to
• 19:25
  Speaker 1: the point where we didn't need as much fiber laid.
• 19:28
  Speaker 2: So you remember metro Media Fiber and Global Crossing, and
• 19:31
  Speaker 2: they were like thousands of dollars per mile laid and sold.
• 19:36
  Speaker 1: For pennies pennies, And you know Metromedia, great example. You know,
• 19:40
  Speaker 1: they had the valuable assets in the cities, but they
• 19:43
  Speaker 1: weren't as valuable as the cost of installation. And it's
• 19:47
  Speaker 1: one of the reasons why I think in distressed investing,
• 19:49
  Speaker 1: one of the worst mistakes you can make is how
• 19:51
  Speaker 1: much money was spent on the assets that you may
• 19:53
  Speaker 1: be acquiring and distressed it's irrelevant. It doesn't matter what
• 19:56
  Speaker 1: is it really worth in the market. Only that matters.
• 19:59
  Speaker 1: How much cash floking gen in the future. That's it.
• 20:01
  Speaker 1: Any investment, that's all that matters. And we can you know,
• 20:04
  Speaker 1: we've I'm sure we'll get into some of the other
• 20:05
  Speaker 1: things we're doing, but at the end of the day,
• 20:07
  Speaker 1: you want to think about what is the inherent value
• 20:09
  Speaker 1: of this business, meaning how much cash flow can this
• 20:13
  Speaker 1: business generate. There are, you know, different ways to value
• 20:18
  Speaker 1: different businesses. You know, luxury assets, as an example, are
• 20:21
  Speaker 1: valued very differently than infrastructure assets or boring, you know,
• 20:26
  Speaker 1: assets in mining, let's say, where the risks are very different,
• 20:29
  Speaker 1: but at the end of the day, there's some basis
• 20:32
  Speaker 1: on you know, how much cash they generate.
• 20:34
  Speaker 2: Dan Gross wrote a book a couple of years ago
• 20:36
  Speaker 2: called Pop Why Bubbles Are Great for the Economy, and
• 20:39
  Speaker 2: his thesis is, yea, let the VC spend all the
• 20:42
  Speaker 2: money laying this fiber when that blows up, and we
• 20:45
  Speaker 2: buy if depending is on the dollar. In the out decades,
• 20:48
  Speaker 2: you get things like YouTube or Facebook or whatever that
• 20:52
  Speaker 2: requires all that bandwidth that no one would want to
• 20:55
  Speaker 2: pay the original money for, but at a thousandth of
• 20:59
  Speaker 2: the price, hey we'll take some bad. Yeah.
• 21:02
  Speaker 1: There's a lot of examples like that over time. And
• 21:07
  Speaker 1: you know, I think there's one thing as it relates
• 21:10
  Speaker 1: to distressed investing, which is a smaller component of what
• 21:12
  Speaker 1: we do now than it was in the early days,
• 21:15
  Speaker 1: but this has always resonated with me. Credit Suite had
• 21:19
  Speaker 1: an index for hiyield data, an index for investment grade loans,
• 21:24
  Speaker 1: and one of the industries they had that no one
• 21:25
  Speaker 1: ever really talked about was the distressed debt index. The
• 21:29
  Speaker 1: distressed debt index has a negative long run return, interesting and.
• 21:34
  Speaker 2: It meaning that the ones that go out of business
• 21:36
  Speaker 2: lose more capital than the ones that recover.
• 21:38
  Speaker 1: Yeah, or or put slightly differently, when a company becomes distressed,
• 21:43
  Speaker 1: let's say that that's the line of demarcation is say
• 21:46
  Speaker 1: seventy cents in the dollar around the debt from that
• 21:49
  Speaker 1: date forward, on average, the ultimate value of that security
• 21:54
  Speaker 1: is lower. That makes sense, and what it tells you
• 21:58
  Speaker 1: is that when companies start to run in problems, that
• 22:01
  Speaker 1: isn't necessarily the low. And there's two types of businesses
• 22:06
  Speaker 1: that run into distress. There are businesses that are that
• 22:09
  Speaker 1: are over levered or mismanaged at a point in time,
• 22:12
  Speaker 1: and then there are companies that have a flawed business
• 22:15
  Speaker 1: model or are somehow on the wrong side of secular change.
• 22:18
  Speaker 1: Those last two categories are really dangerous, really dangerous.
• 22:23
  Speaker 2: Not the first time that someone who's been on a
• 22:26
  Speaker 2: trading desk has told me that, you know, patience is
• 22:30
  Speaker 2: a key attribute to making these investments. If you jump
• 22:34
  Speaker 2: into a First Republic bank a little early, Yeah, well
• 22:38
  Speaker 2: you're early is the same as.
• 22:40
  Speaker 1: Wrong, yes, one hundred percent, and you know it's it's
• 22:45
  Speaker 1: you know your your total return is what matters, and ultimately,
• 22:49
  Speaker 1: you know, buying right is half of the game. That
• 22:54
  Speaker 1: the half that no one ever talks about is selling
• 22:56
  Speaker 1: right right, Which is why I always tell people. People
• 22:58
  Speaker 1: come to me and say, which, you know what, that's
• 23:00
  Speaker 1: your great idea right now? I'm like, I don't give
• 23:01
  Speaker 1: out ideas, and they think that I'm withholding something, not
• 23:04
  Speaker 1: withholding anything. But I got to remember to call you
• 23:06
  Speaker 1: back when it's time to sell. And that's a hard thing.
• 23:08
  Speaker 1: So whenever you're taking a tip from somebody, it's not
• 23:11
  Speaker 1: just a tip to buy. You need a tip on
• 23:12
  Speaker 1: when to sell, and particularly if it's not your idea.
• 23:15
  Speaker 1: And so I think that's one of the things that
• 23:17
  Speaker 1: is often lost on the non professional investing public is
• 23:21
  Speaker 1: buying is half of it. And you can buy right,
• 23:24
  Speaker 1: but I've seen lots and lots and lots of examples
• 23:27
  Speaker 1: of buying right where it looks good for a period
• 23:29
  Speaker 1: of time and ultimately fails because you didn't sell right.
• 23:31
  Speaker 2: I could not agree more it's so true. It's the
• 23:34
  Speaker 2: cocktail party chatter. Yes, is just a lose lose.
• 23:38
  Speaker 1: Yeah, there are a few assets that persistently appreciate for
• 23:40
  Speaker 1: a long period of time. You know, the very very
• 23:42
  Speaker 1: best companies, if you buy them, you know consistently. You
• 23:45
  Speaker 1: know this whole idea of of you know, your retirement
• 23:48
  Speaker 1: account right where you're buying every month. That's great, that
• 23:51
  Speaker 1: that will work for you. You'll learn a very solid
• 23:53
  Speaker 1: return because you're not selling until you're presumably much older.
• 23:58
  Speaker 1: But for an idea raid a moment in time, you
• 24:02
  Speaker 1: got to know when to sell.
• 24:03
  Speaker 2: So here you are on the Goldman Distress Asset desk,
• 24:08
  Speaker 2: working with these future legends, getting a first class education,
• 24:13
  Speaker 2: really baptism of fire, and then some what led to
• 24:16
  Speaker 2: the thought to hey, maybe it's time to graduate from
• 24:20
  Speaker 2: Goldman and launch my own fund. How did you get
• 24:23
  Speaker 2: to that point?
• 24:24
  Speaker 1: You know, there are a number of things that occurred.
• 24:27
  Speaker 1: I would say I had another unique advantage, which is
• 24:31
  Speaker 1: that my wife was in the business as well and
• 24:35
  Speaker 1: had an incredibly successful career, and so I always joked
• 24:38
  Speaker 1: that I had a really valuable backstop at home, meaning
• 24:42
  Speaker 1: that I had the ability to take some risk where
• 24:46
  Speaker 1: personal bankruptcy was maybe less likely, and so that's a
• 24:51
  Speaker 1: huge advantage and not to be understated. And having somebody
• 24:54
  Speaker 1: in your corner that's very supportive, whether it's a spouse
• 24:57
  Speaker 1: or a significant other or friend, parent, that's an important
• 25:01
  Speaker 1: element of achieving success in any new venture. But I think,
• 25:05
  Speaker 1: you know, a couple of things really stand out to me.
• 25:08
  Speaker 1: One I was managing or co managing. I had a
• 25:11
  Speaker 1: co head of my last business that I ran at Goldman,
• 25:15
  Speaker 1: a team of twenty one people. We had about four
• 25:18
  Speaker 1: billion in capital across everything that was non investment grade rated,
• 25:24
  Speaker 1: so all junk rated instruments other than bank loans, so
• 25:28
  Speaker 1: every bond, CDs, contract, convertible, bond, preferred equity, kind of
• 25:34
  Speaker 1: the whole gamut was positioned on our one desk. We
• 25:38
  Speaker 1: crossed over between equity and fixed income, which meant I
• 25:41
  Speaker 1: reported to people in both divisions, which was challenging to
• 25:44
  Speaker 1: say the least. But I sat back one day and recognized, well,
• 25:48
  Speaker 1: if I were doing this on my own and I
• 25:50
  Speaker 1: had this many people and I had this much capital,
• 25:53
  Speaker 1: my paceco would be very different. And so that's a
• 25:55
  Speaker 1: pretty significant motivator. And you know, I felt that that
• 26:01
  Speaker 1: that I would be capable of doing that, So that
• 26:03
  Speaker 1: was one, you know, that was one of the big reasons. Secondly,
• 26:08
  Speaker 1: I think I always wanted to be an entrepreneur. I've
• 26:11
  Speaker 1: always been a little bit taken with entrepreneurs. I'm fascinated
• 26:16
  Speaker 1: by them. There's a lot of great entrepreneurs in the
• 26:18
  Speaker 1: world today that are doing amazing things, and I'm always
• 26:21
  Speaker 1: fascinated by how they've achieved success, particularly those that I
• 26:24
  Speaker 1: think are really changing the world. So I think, you know,
• 26:28
  Speaker 1: those are the things that pushed me there. A conversation
• 26:32
  Speaker 1: I had with my dad really stands out in my mind.
• 26:36
  Speaker 2: You know.
• 26:36
  Speaker 1: I was like talking through with him how the fund
• 26:40
  Speaker 1: economics worked and what the upside was. And I'm like,
• 26:42
  Speaker 1: you know, if we raise X dollars a capital and
• 26:44
  Speaker 1: we put up a y returned, the pay is Z
• 26:47
  Speaker 1: and here's all things that can go right. And he said, well,
• 26:50
  Speaker 1: what if it doesn't go that way? And I said, well,
• 26:54
  Speaker 1: you know, I get kind of ped off. I'm like,
• 26:56
  Speaker 1: what do you mean, Like, you know this is what's
• 26:58
  Speaker 1: going to happen, so well what if it does? And
• 27:00
  Speaker 1: I said, well, then everything will fail and I'll lose
• 27:03
  Speaker 1: some money and I'll have to go out and find
• 27:04
  Speaker 1: a job, and you know, but that's like, that's okay.
• 27:08
  Speaker 1: I'm like, you know, geez, Dad, like, don't you think
• 27:11
  Speaker 1: like I can do this? And he said to me,
• 27:14
  Speaker 1: he goes, I'm not asking you because I don't think
• 27:17
  Speaker 1: you can do it. I'm asking you to make sure
• 27:19
  Speaker 1: you'll be okay if it doesn't. And you know, striking
• 27:23
  Speaker 1: moment where I was like, Wow, how lucky am I
• 27:26
  Speaker 1: to have a father who didn't grow up in this
• 27:29
  Speaker 1: industry and certainly wasn't an expert in it in any way,
• 27:32
  Speaker 1: but was definitely an expert in the things you have
• 27:35
  Speaker 1: to consider. You know. At that time was I was married,
• 27:38
  Speaker 1: I had two kids, and you know, I was taking
• 27:40
  Speaker 1: a substantial risk, and he just wanted to be sure
• 27:43
  Speaker 1: that if it didn't go well, that I'd be all right.
• 27:45
  Speaker 2: And if the worst case scenario is, hey I got
• 27:48
  Speaker 2: to go get another gig at some other firm, that's
• 27:50
  Speaker 2: not such a terrible dance.
• 27:52
  Speaker 1: That's what I thought. The worst case scenario was. Then
• 27:54
  Speaker 1: we get to mid October two thousand and eight, and oh,
• 27:57
  Speaker 1: you launched right into launched right into the disaster I
• 28:00
  Speaker 1: June second eight, So we just passed our fifteen year anniversary.
• 28:03
  Speaker 1: So we launch and you know, the world comes to
• 28:07
  Speaker 1: an end virtually. You know, a few months later.
• 28:10
  Speaker 2: If only you were investing in distress ask eight.
• 28:13
  Speaker 1: If I had a little luck. It was great in
• 28:15
  Speaker 1: that regard, but that there was one very scary day,
• 28:17
  Speaker 1: which is the day that Goldman stock So it's kind
• 28:21
  Speaker 1: of all time post IPO low and we you know,
• 28:25
  Speaker 1: we're a new fund. We weren't that large. We had
• 28:30
  Speaker 1: I think we launched with four hundred and thirteen million
• 28:32
  Speaker 1: a capital, so it was a fine launch. We had
• 28:35
  Speaker 1: a billion and change in commitments a few months earlier
• 28:37
  Speaker 1: before the Bear Stearns unwind. It changed the world. We
• 28:41
  Speaker 1: launched with far less than what we thought we'd launched with.
• 28:44
  Speaker 1: And as a result of being new, you know, you
• 28:46
  Speaker 1: don't you don't have multiple prime brokers, you don't have
• 28:49
  Speaker 1: multiple relationships. So our only prime was Goldman. I still
• 28:53
  Speaker 1: had Goldman stock. My wife was a Goldman mdch at
• 28:56
  Speaker 1: Goldman stock. We both had our cash at Goldman Funds.
• 29:00
  Speaker 1: Cash was at Goldman. And it hit me that if
• 29:03
  Speaker 1: Goldman went the way of Leman, that I would probably
• 29:07
  Speaker 1: you know, be wiped out.
• 29:09
  Speaker 2: So I have to focus on this for a second. Please,
• 29:12
  Speaker 2: I'm ready to move into the next conversation. But it's
• 29:16
  Speaker 2: hard to imagine for the people who were listening, who
• 29:19
  Speaker 2: weren't of age, actively trading working during eight or nine.
• 29:25
  Speaker 2: It sounds ridiculous today that Goldman would go the way
• 29:29
  Speaker 2: Lehman brothers, But in the fall of eight that really
• 29:33
  Speaker 2: wasn't unthinkable.
• 29:34
  Speaker 1: No, it was. It wasn't because there was something wrong
• 29:38
  Speaker 1: with Goldman or any other bank. It was just that
• 29:40
  Speaker 1: if confidence failed, there would have been it would have
• 29:45
  Speaker 1: been very, very difficult for Goldman or almost any other
• 29:48
  Speaker 1: bank to survive. And you know, we've put in place
• 29:51
  Speaker 1: measures now to help protect against that, but ultimately no
• 29:55
  Speaker 1: bank is really protected against a fallen confidence. We just
• 29:58
  Speaker 1: built barriers around them to to ensure that the confidence remains high.
• 30:01
  Speaker 1: And ultimately that's what our fractional banking system and ultimately
• 30:05
  Speaker 1: capitalism is based on. And I'm a big believer in it.
• 30:08
  Speaker 1: But for the people out you know they're listening and
• 30:10
  Speaker 1: thinking about this. If you think that going out and
• 30:13
  Speaker 1: starting a hedge fund is a zero risk proposition, you're
• 30:16
  Speaker 1: just wrong. It's not. And if you want to achieve
• 30:19
  Speaker 1: great success, whether it's in the investing world, or the
• 30:21
  Speaker 1: hedge fund world, or in any venture. Ultimately, it's rare
• 30:27
  Speaker 1: to achieve great success without putting it all on the line.
• 30:29
  Speaker 1: And I didn't really think I'd put it all on
• 30:31
  Speaker 1: the line, but ultimately I did. And you know, I'll
• 30:35
  Speaker 1: tell you it's really motivating. We did really well on
• 30:41
  Speaker 1: a relative basis in two thousand and eight, and exceptionally
• 30:44
  Speaker 1: well in two thousand and nine, and so, you know,
• 30:48
  Speaker 1: I think it was incumbent on us to recognize the
• 30:51
  Speaker 1: moment in time we were facing and be willing to
• 30:54
  Speaker 1: take that much risk. You know, It's sort of like
• 30:56
  Speaker 1: if you you know people people today get frustrated when
• 31:01
  Speaker 1: we see great wealth, okay, but you have to stop
• 31:04
  Speaker 1: and think about the risks that we're taken to attain that.
• 31:06
  Speaker 1: Perhaps the best example today is Elon Musk, who achieved
• 31:10
  Speaker 1: multi generational wealth in the sale of his first his
• 31:13
  Speaker 1: first big win PayPal and PayPal, and then risked every
• 31:17
  Speaker 1: single penny to build Ultimate three three different companies. And
• 31:22
  Speaker 1: whether you give him all the credit or some of
• 31:24
  Speaker 1: the credit is irrelevant. He took the most risks.
• 31:26
  Speaker 2: He rolled the dice, and at one point in time,
• 31:31
  Speaker 2: if Tesla hadn't worked out, he would have been completely
• 31:35
  Speaker 2: bustled out. Shocking to think about someone having such a
• 31:39
  Speaker 2: massive success yeah, and then saying no, no, let's put
• 31:41
  Speaker 2: it all on red and spin the wheel and see
• 31:43
  Speaker 2: what happened.
• 31:43
  Speaker 1: An enormous conviction. And I have to say that, having
• 31:48
  Speaker 1: you know, done business directly with Elon by way of
• 31:51
  Speaker 1: our investment in hurts, you know, I have an incredible
• 31:57
  Speaker 1: amount of respect for his conviction as a business person,
• 32:00
  Speaker 1: and I think that's probably informed some of his views generally,
• 32:06
  Speaker 1: and ultimately, I just believe that that kind of disposition
• 32:13
  Speaker 1: is important in society, and it's important, and particularly in
• 32:17
  Speaker 1: a capitalistic society to have risk takers and have people
• 32:22
  Speaker 1: that are willing to really stick their necks out, because
• 32:24
  Speaker 1: if you don't take risk, you're not going to achieve reward.
• 32:27
  Speaker 1: It just there's no two ways around it. And you
• 32:29
  Speaker 1: need the incentive structure to be set up such that
• 32:32
  Speaker 1: people are willing to take those risks. And interestingly, you know,
• 32:36
  Speaker 1: you have a guy in Elon that doesn't really own
• 32:40
  Speaker 1: anything other than his companies. He is not an acquirer
• 32:43
  Speaker 1: of things. He's a builder of businesses, and that's all
• 32:47
  Speaker 1: his focus is. And that for the markets in general.
• 32:51
  Speaker 1: Folks like that are good. They deploy capital, they grow businesses,
• 32:56
  Speaker 1: they create jobs. Ultimately, if you take a step back
• 32:59
  Speaker 1: and think about what he's doing with his three major companies,
• 33:02
  Speaker 1: it's pretty astounding. You know. In in Tesla, it's leading
• 33:08
  Speaker 1: the revolution evs, and and we believe enormously in the
• 33:12
  Speaker 1: value of evs, not simply because they're good environmentally, which
• 33:16
  Speaker 1: which they are, although I think there there's a there's
• 33:19
  Speaker 1: a good solid debate around just how beneficial they are environment.
• 33:23
  Speaker 2: Well, the whole minerals, rare are things in the astraction
• 33:26
  Speaker 2: and if those are problematic.
• 33:27
  Speaker 1: That's right. And what you do with the batteries at
• 33:29
  Speaker 1: the end of life and making sure you recycle them,
• 33:31
  Speaker 1: those things are all incredibly important. And how we generate
• 33:34
  Speaker 1: the electricity, the charges of vehicles, all of those things
• 33:37
  Speaker 1: need to be considered. But ultimately, the cost of running
• 33:39
  Speaker 1: an EV over a long period of time is demonstrably
• 33:42
  Speaker 1: lower than an ice car. Meaning an internal about it.
• 33:46
  Speaker 2: And as a car guy, I am would be lying
• 33:50
  Speaker 2: if I didn't say it's a superior propulsion system. When
• 33:54
  Speaker 2: you step on the gas on a high step on
• 33:57
  Speaker 2: the gas. Look at how I stuck in when you
• 34:00
  Speaker 2: mashed down the accelerator in an ev ice, engines just
• 34:04
  Speaker 2: can't match that comp And it's a fraction of the cost.
• 34:08
  Speaker 2: What used to cost a million dollars for a thousand
• 34:10
  Speaker 2: horse power you could pick up for twenty percent of that,
• 34:13
  Speaker 2: and it's a shocking change. I give a lot of credit,
• 34:18
  Speaker 2: not just to Elon, but I'm pretty convinced that Jeff
• 34:22
  Speaker 2: Bezos deserves some credit because after Amazon demolished so much
• 34:28
  Speaker 2: of retail and yeah, America was over retailed. In this
• 34:30
  Speaker 2: whole other conversation there, I got the sense that the
• 34:34
  Speaker 2: entire legacy automaker world looked at Elon and said, Hey,
• 34:39
  Speaker 2: we can't let this guy do to us what Bezos
• 34:42
  Speaker 2: did to retail. We got to step it up absolutely.
• 34:45
  Speaker 1: And I think that, look, you've got some other great executives.
• 34:49
  Speaker 1: You know what Mary Barr is doing at GM and
• 34:53
  Speaker 1: some of the products they have coming out. Yes, they're
• 34:55
  Speaker 1: behind Tesla. I don't think that I'm saying anything that's controversial.
• 34:58
  Speaker 1: They're they're spectacular products. Yeah, I think that Ford is
• 35:01
  Speaker 1: the world's largest commercial vehicle manufacturer. We'll find its footing
• 35:05
  Speaker 1: and evs and come up with some pretty spectacular.
• 35:07
  Speaker 2: They've been crushing it. When you look at not just
• 35:10
  Speaker 2: the Mustang Mocky, but the one Lightning. Have you driven
• 35:14
  Speaker 2: that pick up?
• 35:14
  Speaker 1: It's amazing.
• 35:15
  Speaker 2: No vehicle that large has any business being that fast.
• 35:19
  Speaker 2: It's shocking.
• 35:19
  Speaker 1: It is shocking. And and you know, I'm Farley's a
• 35:23
  Speaker 1: big motorsport guy, and so I'm I've got a you know,
• 35:27
  Speaker 1: uh soft spot for that. And obviously Mary's you know,
• 35:31
  Speaker 1: move into endurance racing with Cadillac is pretty interesting. So
• 35:35
  Speaker 1: there's a lot of exciting things going on. But I
• 35:37
  Speaker 1: think when you when you look at what you know
• 35:39
  Speaker 1: Elon did and kind of kicking off that revolution, it's
• 35:42
  Speaker 1: it's a good thing, uh, for the Market's a good
• 35:46
  Speaker 1: thing for society. Ultimately, we've got we've got some things
• 35:48
  Speaker 1: we need to get right as it relates to power generation,
• 35:51
  Speaker 1: but that's good SpaceX and what that will do for
• 35:54
  Speaker 1: the cost of lift is with this new the largest rocket,
• 35:59
  Speaker 1: I'm blanding on the name, but you know that's going
• 36:02
  Speaker 1: to be an unbelievable reduction and lift costs. I think
• 36:05
  Speaker 1: it's ninety percent cheaper than the Apollo program, which is astounding.
• 36:09
  Speaker 1: And then finally with with the satellite business, and you
• 36:15
  Speaker 1: know what we can do for telecommunications. You know how
• 36:20
  Speaker 1: it's difficult to assess without getting into a kind of
• 36:23
  Speaker 1: a deep rabbit hole, how valuable it is to have
• 36:25
  Speaker 1: thousands of satellites that are really hardened against strategic attacks
• 36:31
  Speaker 1: and can serve the entire planet and provide fast communication
• 36:36
  Speaker 1: and data. Is an unbelievable resource for humanity.
• 36:42
  Speaker 2: Especially for the non industrialized countries that skipped over landlines
• 36:50
  Speaker 2: and stringing copper, attached the dead trees and went right
• 36:54
  Speaker 2: to mobile. This is data, voice communications, no matter what
• 36:58
  Speaker 2: you want on the globe.
• 36:59
  Speaker 1: It's amazing and those things, those you know, those are
• 37:01
  Speaker 1: going to have an extraordinary impact on humanity. I'm a
• 37:05
  Speaker 1: big believer in the power of humanity. When we, you know,
• 37:09
  Speaker 1: provide people with opportunity, I think, all things being equal,
• 37:14
  Speaker 1: they tend to respond really well.
• 37:15
  Speaker 2: And we're recording this at the end of June, and
• 37:18
  Speaker 2: the news broke very recently that Tesla cut a deal
• 37:23
  Speaker 2: with GM and Ford to make their massive network of
• 37:27
  Speaker 2: chargers available to GM and fod evs. That's potentially a
• 37:34
  Speaker 2: game changer, and it's potentially a revenue source for Tesla
• 37:38
  Speaker 2: that looks out years and years and years.
• 37:41
  Speaker 1: Absolutely, and what it does is it begins to reduce
• 37:45
  Speaker 1: the range anxiety that people ultimately feel. Look, you know,
• 37:48
  Speaker 1: one of the things that we looked at It Hurts,
• 37:51
  Speaker 1: and I have to credit Steven Share, our CEO, for
• 37:53
  Speaker 1: being really unbelievable in his pursuit of the objective of
• 37:59
  Speaker 1: electrifying more of the fleet. But one of the things
• 38:02
  Speaker 1: that his team looked at was the percentage of trips
• 38:05
  Speaker 1: that are greater than two hundred miles and ninety single
• 38:10
  Speaker 1: It's a very low percentage. Most rental days are less
• 38:13
  Speaker 1: than two hundred miles, Most total rental experiences over a
• 38:18
  Speaker 1: multi day period lesson two hundred miles. So this idea
• 38:20
  Speaker 1: of range anxiety accounts for very small percentage of trips
• 38:23
  Speaker 1: that people ultimately take. And as we have access to
• 38:25
  Speaker 1: more charging, and particularly charging in places where cars reside
• 38:30
  Speaker 1: at rest so restaurants, hotels, office buildings, homes, that's critically important.
• 38:36
  Speaker 1: And I think one of the big initiatives that I
• 38:39
  Speaker 1: love that Steven's pursuing It Hurts is to bring charging
• 38:43
  Speaker 1: infrastructure into underserved communities and that's something that he's working
• 38:47
  Speaker 1: on with British Petroleum and Uber and state and city
• 38:52
  Speaker 1: municipalities and kind of bringing that opportunity to areas where
• 38:55
  Speaker 1: it's a little tougher, you know, to have charging infrastructure
• 38:58
  Speaker 1: in the home. So that's all of this is spurned by,
• 39:02
  Speaker 1: you know, the initial foray of of Tesla and Evs,
• 39:06
  Speaker 1: and then ultimately these other great companies following.
• 39:09
  Speaker 2: Huh really quite quite fascinating. Let's talk a little bit
• 39:12
  Speaker 2: about investing in sports. Tom Brady, Tom Brady, how does
• 39:19
  Speaker 2: this happen?
• 39:20
  Speaker 1: Well, Tom, Tom and I have known each other for
• 39:22
  Speaker 1: a long time, and we met through some mutual friends
• 39:27
  Speaker 1: and our boys. Actually, his eldest son and my son
• 39:32
  Speaker 1: were classmates for a number of years together at the
• 39:36
  Speaker 1: school here in New York City, and so we get
• 39:39
  Speaker 1: to know each other and then became friendly, and then
• 39:42
  Speaker 1: opportunities arose where we saw some pretty interesting things to
• 39:46
  Speaker 1: do in sport. And you know, if you're going to
• 39:48
  Speaker 1: invest in sport, you know, why not do it with
• 39:52
  Speaker 1: somebody who has had unparalleled success in sport, not simply
• 39:58
  Speaker 1: in so far as winning or winning percentages or statistics,
• 40:02
  Speaker 1: but in the persistent performance at the highest level over
• 40:07
  Speaker 1: an incredibly long period of time in a sport that
• 40:09
  Speaker 1: is absolutely not known for longevity.
• 40:12
  Speaker 2: Yeah, to say, to say, what's the average NFL three
• 40:15
  Speaker 2: of three years, although very quarterbacks are do a little
• 40:18
  Speaker 2: better than that. But he played at New England for decades.
• 40:22
  Speaker 1: Yeah, in twenty three year career and you know, set
• 40:25
  Speaker 1: just about every record that could possibly be set, and
• 40:27
  Speaker 1: I think did it in a way that you know,
• 40:32
  Speaker 1: left his legacy unlikely to be paralleled. And what I
• 40:36
  Speaker 1: mean by that is, you know, he brought others up.
• 40:39
  Speaker 1: If you look at the performance of his teammates when
• 40:42
  Speaker 1: they were with him vis a vis their performance elsewhere,
• 40:45
  Speaker 1: or the teams when he was with them versus when
• 40:47
  Speaker 1: he wasn't, it's pretty clear that, you know, he is
• 40:51
  Speaker 1: a key component of success. So you know, we wanted
• 40:53
  Speaker 1: to understand that and tap into it. And I think
• 40:55
  Speaker 1: a lot of it has to do with nutrition and
• 40:57
  Speaker 1: recovery and that's a big area of Tom's focus. And
• 41:02
  Speaker 1: so you know, we've looked at investments where we can
• 41:04
  Speaker 1: partner together and bring some of that to bear. Also
• 41:08
  Speaker 1: where we can use you know, his his fame as
• 41:13
  Speaker 1: a as a springboard to bring attention to a sport
• 41:16
  Speaker 1: or an opportunity. So we've we've done a handful of
• 41:18
  Speaker 1: things together, and I think there'll be more to come.
• 41:21
  Speaker 2: I love the concept of those rare players who make
• 41:24
  Speaker 2: everyone around them better, whether it's Tom Brady or Michael Jordan,
• 41:29
  Speaker 2: or Derek Jeter or go down the list. There's something
• 41:31
  Speaker 2: really interesting about it. I also love this headline, this
• 41:36
  Speaker 2: Bloomberg headline, why a hedge fund manager is betting on
• 41:39
  Speaker 2: pickleball with Tom Brady and former number one ranked world
• 41:45
  Speaker 2: tennis player Kim Kleisters tell us about pickleball. I'm a
• 41:50
  Speaker 2: tennis player, and I'm terrified of pickleball because I don't
• 41:53
  Speaker 2: want to affect my swing.
• 41:55
  Speaker 1: Well, I don't think that pickleball would have would would
• 41:57
  Speaker 1: damage in any way your swing, I think. But we
• 42:00
  Speaker 1: found interesting about pickleball is the enormous explosion of popularity
• 42:04
  Speaker 1: in the.
• 42:05
  Speaker 2: US fastest growing sports growing sport.
• 42:08
  Speaker 1: We liked the idea of a league with teams that
• 42:13
  Speaker 1: are based in or connected to cities, so you bring
• 42:15
  Speaker 1: in a tribalism element to it, which has proven very
• 42:18
  Speaker 1: successful in sport over the years. We liked, you know,
• 42:22
  Speaker 1: the idea that this would be something that would continue
• 42:24
  Speaker 1: to grow. It's a it's an early early stage investment.
• 42:27
  Speaker 1: It was it was not a particularly large investment, but
• 42:29
  Speaker 1: it was something that we were excited about. And you know,
• 42:32
  Speaker 1: Tom and I have played pickleball and enjoy playing pickleball.
• 42:36
  Speaker 1: And is he any good? He's very good. You know,
• 42:40
  Speaker 1: people forget by the way, you know his athleticism. Is
• 42:42
  Speaker 1: a guy that was drafted in two different sports, right,
• 42:46
  Speaker 1: and so he and he's a super competitive human.
• 42:49
  Speaker 2: That's the thing I was thinking of. It's like Michael
• 42:51
  Speaker 2: Jordan and golf. It doesn't matter what his skill level is,
• 42:54
  Speaker 2: he is not going to back down.
• 42:56
  Speaker 1: No, No, I think there's a level of you know,
• 42:58
  Speaker 1: when you run into anybody who was incredibly success us
• 43:00
  Speaker 1: will in a given profession. They tend to be hyper competitive.
• 43:02
  Speaker 1: And so you know, I think we we saw the
• 43:05
  Speaker 1: demographics and were attracted to it and and are quite
• 43:08
  Speaker 1: excited about that opportunity. I think there's a long way
• 43:11
  Speaker 1: to go to to get the league to the point
• 43:12
  Speaker 1: where it's where it's you know, really connecting on a
• 43:15
  Speaker 1: commercial level. But I you know, we we think that
• 43:17
  Speaker 1: there's a great tale in there.
• 43:19
  Speaker 2: Let's discuss another sports investment. We're recording this at the
• 43:23
  Speaker 2: end of June. By the time as broadcast, you will
• 43:26
  Speaker 2: have closed the deal to purchase Birmingham City FC in
• 43:31
  Speaker 2: the English Football League. Why a soccer club, What what
• 43:34
  Speaker 2: motivates this and why the UK that that seems to
• 43:38
  Speaker 2: be a little off the beaten path.
• 43:40
  Speaker 1: Well, we were really really excited about the prospect of
• 43:45
  Speaker 1: investing in Birmingham. There were a few things that drew
• 43:50
  Speaker 1: us to that particular opportunity that were unique to Birmingham.
• 43:54
  Speaker 1: So first, it's it's England's second city. It's we understand
• 43:58
  Speaker 1: it to be the youngest city in Europe, it's one
• 44:01
  Speaker 1: of the fastest growing cities in Europe, youngest professional population
• 44:06
  Speaker 1: in Europe, very very diverse population, and a city that
• 44:11
  Speaker 1: is going through what I would characterize as sort of
• 44:14
  Speaker 1: urban renewal, where a lot of investment is coming in alongside,
• 44:18
  Speaker 1: you know, and not a lot of a lot of
• 44:19
  Speaker 1: new folks that are moving into the city. And so
• 44:22
  Speaker 1: all of those demographics were really really interesting to us.
• 44:24
  Speaker 1: Then you have the named team in the city that
• 44:28
  Speaker 1: had been under invested in and had gotten a lot
• 44:32
  Speaker 1: of things wrong in our opinion, in the preceding years,
• 44:35
  Speaker 1: the fan experience was really subpar and candidly not fair
• 44:41
  Speaker 1: relative to the incredibly passionate fan base that Birmingham City has.
• 44:45
  Speaker 1: We just you go there and you spend time with
• 44:50
  Speaker 1: these folks and you talk to them. They are just
• 44:52
  Speaker 1: amazing people. And you know, we felt that one there
• 44:57
  Speaker 1: was an opportunity where we could turn the team around.
• 45:00
  Speaker 1: Can talk a little bit about that, and two where
• 45:02
  Speaker 1: we could connect with the folks that are so passionate
• 45:06
  Speaker 1: about this and effectively partner with them to make this
• 45:10
  Speaker 1: a much better experience and hopefully a much more successful team.
• 45:15
  Speaker 2: So let's talk a little bit about that. What are
• 45:18
  Speaker 2: you guys doing to turn around the team and also
• 45:21
  Speaker 2: to kind of bring the stadium up to speed. It
• 45:24
  Speaker 2: seemed to be a little neglected prior to your investment.
• 45:28
  Speaker 1: Yeah, you know, for a recent past, almost a third
• 45:32
  Speaker 1: of the seats in the stadium were not fit for
• 45:35
  Speaker 1: use because of some structural issues in the stadium that's
• 45:39
  Speaker 1: being remediated. The pitch was in disrepair, the concessions, the
• 45:46
  Speaker 1: quality of the seats, the overall look of the stadium,
• 45:49
  Speaker 1: the electronics, Wi Fi, everything was was either not there,
• 45:54
  Speaker 1: not working, or you know, in a state of disrepair.
• 45:58
  Speaker 1: And so I think improving all of those things and
• 46:00
  Speaker 1: more will really improve the fan experience. And that's important, right,
• 46:04
  Speaker 1: It's not simply what's going on in the pitch. It's
• 46:06
  Speaker 1: the overall experience, particularly if you're if you're going with
• 46:09
  Speaker 1: friends or family or what have you. You know, we
• 46:12
  Speaker 1: need to make that experience commensurate with the legacy of
• 46:16
  Speaker 1: the team. The second thing is obviously the competitiveness on
• 46:19
  Speaker 1: the field. That is something that is constrained by the
• 46:23
  Speaker 1: English Football League rules which require that you not spend
• 46:27
  Speaker 1: more than the revenue that you make. So you can't
• 46:29
  Speaker 1: just go out and say I'm going to spend an
• 46:31
  Speaker 1: ungodly sum of money.
• 46:32
  Speaker 2: Waite, So let me let me get up dispute on
• 46:34
  Speaker 2: this because I don't know those rules. This isn't like
• 46:38
  Speaker 2: a salary cap like Major League Baseball has with a
• 46:41
  Speaker 2: penalty if you go over. It's hey, whatever you generate
• 46:45
  Speaker 2: is how much you can spend. You would think people
• 46:49
  Speaker 2: would do whatever they could to get more butts in
• 46:51
  Speaker 2: the seats to generate more revenue.
• 46:53
  Speaker 1: Yeah, you have to have and that's why I say
• 46:55
  Speaker 1: it has to be a partnership with the with the fans.
• 46:57
  Speaker 1: You have to create an experience where people want to
• 47:01
  Speaker 1: support the team, and then ultimately you have to be
• 47:03
  Speaker 1: prudent in allocating those pounds to the players that will
• 47:09
  Speaker 1: perform in the field, and that's obviously incumbent on our
• 47:12
  Speaker 1: team to get that right. But it's not one thing, Barry,
• 47:15
  Speaker 1: it's everything. We have to work on every element of
• 47:18
  Speaker 1: this and turn around every element to the team. It's
• 47:21
  Speaker 1: different sponsors, it's different partners, it's different oversight, it's different management,
• 47:27
  Speaker 1: it's different talent acquisition. All of it has to be changed,
• 47:29
  Speaker 1: and certainly we won't be able to do that overnight,
• 47:32
  Speaker 1: but we're going to start the process immediately and get
• 47:35
  Speaker 1: to a place where our hope is to field an
• 47:37
  Speaker 1: immediately competitive team and then ultimately, you know, do all
• 47:41
  Speaker 1: of the things that we need to do to make
• 47:43
  Speaker 1: it permanently competitive.
• 47:44
  Speaker 2: So is this a fun investment or is this Hey,
• 47:47
  Speaker 2: we're looking for this sort of ROI and this sort
• 47:49
  Speaker 2: of return over time. How do you? Because I think
• 47:53
  Speaker 2: of Steve Cohen's acquisition in New York Mets, which, by
• 47:57
  Speaker 2: the way, you go to City fel Field, the whole
• 48:01
  Speaker 2: experiences next level compared to what it was like in
• 48:04
  Speaker 2: the I grew up with Say Stadium and was a
• 48:07
  Speaker 2: little bit of a sad compared to Yankee Stadium. Now
• 48:13
  Speaker 2: I don't know if this is blasphemy. City Field is
• 48:16
  Speaker 2: nicer than the New Yankee Stadium. It's amazing. So so
• 48:19
  Speaker 2: tell us a little bit about the thought thought process
• 48:22
  Speaker 2: on Well.
• 48:22
  Speaker 1: I think you've touched on something, right. I grew up
• 48:24
  Speaker 1: outside of Boston and I was a Red Sox supporter
• 48:27
  Speaker 1: and I go to Fenway and that experience in the
• 48:29
  Speaker 1: seventies is very different than when you have today. You know,
• 48:33
  Speaker 1: it's much better, same stadium, but a much better, much
• 48:35
  Speaker 1: different experience, more engaging for the fans, particularly on the
• 48:38
  Speaker 1: weekends when you have a lot of family activities. And
• 48:41
  Speaker 1: so I think the whole fan engagement needs to change.
• 48:44
  Speaker 1: And you know, some of what we're doing in Birmingham
• 48:47
  Speaker 1: is bringing in different sponsors that bring an element of
• 48:54
  Speaker 1: cool for lack of a better word, to the team. Right,
• 48:57
  Speaker 1: this is a team that should be viewed differently than
• 48:59
  Speaker 1: it has been, and we're trying to demonstrate by way
• 49:02
  Speaker 1: of drawing sponsors in that have never been associated with
• 49:06
  Speaker 1: being attached to a particular sports franchise into the realm
• 49:11
  Speaker 1: to raise the profile. All of those things matter in
• 49:15
  Speaker 1: the context of helping to improve the overall performance of
• 49:18
  Speaker 1: the team because it helps to improve your overall revenue.
• 49:21
  Speaker 1: So those are all things that we're working on. But
• 49:23
  Speaker 1: when you ask the question about perspective returns, look, sports
• 49:27
  Speaker 1: franchises have proven to be pretty consistently appreciating assets over time,
• 49:33
  Speaker 1: and there's a variety of reasons for that. We don't
• 49:36
  Speaker 1: think that that changes in the near or intermediate term.
• 49:39
  Speaker 1: So from that perspective, we believe there's a tailwind there. However,
• 49:43
  Speaker 1: what we see in Birmingham is a unique opportunity to
• 49:46
  Speaker 1: fix some things that have been done correctly, to invest
• 49:49
  Speaker 1: appropriately in the infrastructure, and to position the team to
• 49:54
  Speaker 1: achieve the level of success was that it had had
• 49:57
  Speaker 1: looking back a couple of decades ago. If we get
• 49:59
  Speaker 1: all those things right, obviously we've created a lot of
• 50:02
  Speaker 1: value for our investors. And I think we have the
• 50:04
  Speaker 1: right team of people to help us do that, both
• 50:06
  Speaker 1: internally and externally. So I think our focus in Birmingham
• 50:10
  Speaker 1: is let's not worry about how much money we make.
• 50:13
  Speaker 1: Let's worry about getting it right, making the right decisions.
• 50:16
  Speaker 1: The success will follow. And I think that's the case
• 50:18
  Speaker 1: in any turnaround investment. Don't say I need to do
• 50:22
  Speaker 1: X so I can make why. In return, focus on
• 50:26
  Speaker 1: making the changes you need to make to allow the
• 50:29
  Speaker 1: business to be more successful that the returns will follow.
• 50:33
  Speaker 2: I'm fascinated by the idea of the revenue cap. Does
• 50:36
  Speaker 2: that apply to the team or the stadium? Like if
• 50:39
  Speaker 2: Taylor Swift comes in and does a show and you
• 50:42
  Speaker 2: capture some revenue for hosting that, can you apply that
• 50:46
  Speaker 2: to the team or is that the stadium a separate
• 50:49
  Speaker 2: revenue its venue.
• 50:50
  Speaker 1: It's all part of the calculation. So we if the
• 50:53
  Speaker 1: two are owned in the same enity, which ours will
• 50:55
  Speaker 1: be the team in our stake and the team and
• 50:57
  Speaker 1: our ownership of the stadium will all be in the
• 51:00
  Speaker 1: same entity. So we're focused on doing all kinds of
• 51:04
  Speaker 1: things that that will lead to additional revenue generation. But
• 51:08
  Speaker 1: taking a step back from that for a moment, it's
• 51:10
  Speaker 1: about creating a culture of success around that organization, and
• 51:19
  Speaker 1: that goes beyond the bottom line, if you will. It's
• 51:23
  Speaker 1: it's about creating the right types of events that draw
• 51:26
  Speaker 1: the community in. So this becomes a focal point for
• 51:29
  Speaker 1: the community, cultural center, and if you think about English football,
• 51:35
  Speaker 1: it is in many respects for a substantial part of
• 51:38
  Speaker 1: the population, the cultural hub of the community. A lot
• 51:43
  Speaker 1: and if you can make that a better experience, not
• 51:45
  Speaker 1: just on match day but beyond that and bring the
• 51:49
  Speaker 1: community into the organization. Now you've really charted started to
• 51:53
  Speaker 1: achieve success. And one of the things that we love
• 51:56
  Speaker 1: about Birmingham is it sits in the middle of the country.
• 51:59
  Speaker 1: It'll be a hub of the new high speed rail
• 52:02
  Speaker 1: system in the sense that eighty percent of the English
• 52:06
  Speaker 1: population will be within a one hour train ride of Birmingham. Really,
• 52:10
  Speaker 1: when HS two or high speed Rail two is completed,
• 52:13
  Speaker 1: you know, looking out eight ten years from now, that's
• 52:16
  Speaker 1: an extraordinary thing. You know, Birmingham could end up being
• 52:20
  Speaker 1: a location that folks visit for football matches, concerts, other
• 52:26
  Speaker 1: sporting events, you know, whether it's whether it's football or
• 52:29
  Speaker 1: rugby or what have you, motorsport. There could be a
• 52:31
  Speaker 1: whole series of things that could occur in Birmingham. And
• 52:34
  Speaker 1: quite frankly, if not Birmingham, then why anywhere else. It's
• 52:37
  Speaker 1: it will be so accessible to so many people, such
• 52:40
  Speaker 1: a huge percentage of the population that why not make
• 52:44
  Speaker 1: it a center for sport.
• 52:45
  Speaker 2: How many seats does the stadium hold and how far
• 52:48
  Speaker 2: can that be expanded?
• 52:49
  Speaker 1: It's about twenty nine thousands, so.
• 52:50
  Speaker 2: That's a real that's a substanti good.
• 52:52
  Speaker 1: Statu it's good size. I think, you know, we've got
• 52:55
  Speaker 1: to look at the infrastructure there and decide what's best
• 52:59
  Speaker 1: for the long term needs of the team and the community.
• 53:02
  Speaker 1: And so, you know, we're early days and so all
• 53:05
  Speaker 1: those things will be looked at. I think for us,
• 53:07
  Speaker 1: the immediate focus is let's make this more fun for
• 53:11
  Speaker 1: the fans.
• 53:12
  Speaker 2: You mentioned motorsports again relatively new breaking news. Ryan Reynolds
• 53:17
  Speaker 2: and Rob mcclhaney just bought twenty five stake in the
• 53:22
  Speaker 2: Alpine F one team. Tell us about motorsports any aspirations
• 53:27
  Speaker 2: in that area.
• 53:28
  Speaker 1: Well, we have an investment in motorsport. We own a
• 53:32
  Speaker 1: World Endurance Championship racing team. So endurance racing is think
• 53:37
  Speaker 1: twenty four hours of Lama, twenty four hours of Daytona.
• 53:41
  Speaker 1: We have the only private team in the the WEC
• 53:45
  Speaker 1: or World Endurance Championship race this season. That that is
• 53:49
  Speaker 1: a series that has run one race in the US
• 53:53
  Speaker 1: and a series throughout Europe, Middle East, in Asia, and
• 53:58
  Speaker 1: we're quite excited about it. You know, we'd endurance racing
• 54:01
  Speaker 1: used to be more popular than F one. If you
• 54:04
  Speaker 1: go back into the sixties and seventies and has has
• 54:07
  Speaker 1: re emerged with a new class of hyper cars that
• 54:09
  Speaker 1: were introduced, and you've got all these luxury brands getting
• 54:13
  Speaker 1: into it. So Porsche, which manufactures the car that we're racing,
• 54:16
  Speaker 1: and we're thrilled to the car. It's actually a nine
• 54:20
  Speaker 1: to sixty three, so it's a purpose built car for
• 54:23
  Speaker 1: endurance racing. It looks like an F one car with
• 54:26
  Speaker 1: an enclosure over the driver because they're in some cases
• 54:29
  Speaker 1: driving the team of drivers is driving for twenty four
• 54:32
  Speaker 1: hours in any weather condition. And so Porsches involved. We've
• 54:37
  Speaker 1: got Ferrari, Lamborghini's entering next year. BMW is entering next year,
• 54:42
  Speaker 1: Alpines coming in Cadillac, you know, has a very competitive
• 54:46
  Speaker 1: team Poujo. So there's if you look at all these
• 54:49
  Speaker 1: great manufacturers are getting back into endurance racing. It's really exciting.
• 54:54
  Speaker 1: We are tickled to be involved with it, and so
• 54:57
  Speaker 1: we've brought in some of our partners. Brand not surprisingly
• 55:02
  Speaker 1: is involved with the team. A couple of other companies
• 55:06
  Speaker 1: that were invested in, one being Singer Vehicle Design was
• 55:10
  Speaker 1: responsible for putting together the livery or the paint scheme
• 55:12
  Speaker 1: on the car. As a sponsor as well, so we're
• 55:15
  Speaker 1: really excited about that. We're looking at other opportunities in
• 55:18
  Speaker 1: motorsport or expanding our existing investment and trying to think
• 55:22
  Speaker 1: about how it fits within the ecosystem of investments we
• 55:25
  Speaker 1: have in the portfolio. Anything that we do in sport,
• 55:27
  Speaker 1: we try to think about how does it fit within
• 55:30
  Speaker 1: other investments in our longer term thesis around a given
• 55:35
  Speaker 1: industry or sector.
• 55:36
  Speaker 2: It's interesting you mentioned the older days of endurance racing.
• 55:40
  Speaker 2: It really was launched as a way for companies to show, look,
• 55:44
  Speaker 2: how solidly built and reliable our vehicles are, we can
• 55:47
  Speaker 2: run them flat out. I was just watching something on
• 55:50
  Speaker 2: the Millimiglia in Italy and I think it was it Sterling.
• 55:56
  Speaker 2: I'm trying to remember who set the record over one
• 55:59
  Speaker 2: thousand miles averaged one hundred miles per hour, which is
• 56:02
  Speaker 2: insane because you're just going through towns and that record
• 56:06
  Speaker 2: has has never been beat. But when you do that,
• 56:09
  Speaker 2: and I think that was in a Mercedes back in
• 56:11
  Speaker 2: the fifties or sixties, When you do that, hey, the
• 56:14
  Speaker 2: brand's reputation for liability hard to top. I know Porsche
• 56:21
  Speaker 2: put out this was it as a car racer, which
• 56:25
  Speaker 2: is based on their actual racing vehicle, and then Lamborghini
• 56:30
  Speaker 2: just took I think it's a hurricane that they turned
• 56:32
  Speaker 2: into an off road vehicle, which looks looks ridiculous, And
• 56:36
  Speaker 2: of course everything Singer touches is just gorgeous. So having
• 56:40
  Speaker 2: them do the do the the paint and the interior
• 56:44
  Speaker 2: is I'm sure that is going to be spectacular.
• 56:46
  Speaker 1: No, it's it's it's an area where there's a distinct
• 56:53
  Speaker 1: business case for the manufacturers to be involved in endurance racing.
• 56:56
  Speaker 1: It does showcase exactly the things that you're that you're
• 56:59
  Speaker 1: speaking to. You know, each of these manufacturers is going
• 57:02
  Speaker 1: to develop a motor and a drive train. They're all
• 57:05
  Speaker 1: hybrid cars, which which we love. But if you look
• 57:08
  Speaker 1: at the Endurance Series, you know you've always had GT
• 57:11
  Speaker 1: cars in there. Although I think for next year, because
• 57:13
  Speaker 1: of the number of hypercars that will be in the class,
• 57:16
  Speaker 1: race is like like LAMA won't have a GT race.
• 57:19
  Speaker 1: At the same time, I think could just be too
• 57:21
  Speaker 1: many of these supercars you know, in track to do that.
• 57:24
  Speaker 1: But nonetheless, the expansion to include other luxury brands is
• 57:29
  Speaker 1: really interesting and I have to say, having attended LAMA
• 57:33
  Speaker 1: this year, it is an unbelievable event to have twenty
• 57:37
  Speaker 1: four hour long race. You know, there's all kinds of
• 57:40
  Speaker 1: things that happened. You know, you've you're always going to
• 57:43
  Speaker 1: experience problems. It's a fascinating thing to watch.
• 57:46
  Speaker 2: Really quite quite fascinating. So let's talk a little bit
• 57:50
  Speaker 2: about distressed investing. Your firm runs private credit, commercial real estate,
• 57:56
  Speaker 2: long short real estate, and ensure currants, as well as
• 58:01
  Speaker 2: an asset management shop and some of the sports investing
• 58:05
  Speaker 2: we've talked about previously. How to all these separate businesses
• 58:10
  Speaker 2: and approaches. Do they work together or are they all
• 58:13
  Speaker 2: separately siloed? What's the to use a dirty word, synergy
• 58:17
  Speaker 2: between all these different divisions.
• 58:19
  Speaker 1: I think at our core we're value investors, So we're
• 58:23
  Speaker 1: looking for situations where we believe in virtually any scenario
• 58:29
  Speaker 1: we have no or a very very low risk of impairment,
• 58:35
  Speaker 1: meaning we won't lose money. That's the goal. And whether
• 58:39
  Speaker 1: it's a turnaround situation or a private loan, or even
• 58:43
  Speaker 1: a private equity situation or growth capital for a smaller company.
• 58:48
  Speaker 1: In each of those situations, we're trying to structure the
• 58:50
  Speaker 1: investment where we believe that if our thesis is wrong
• 58:54
  Speaker 1: that we won't lose money. And the way that these
• 58:57
  Speaker 1: all fit together is that the duration of capital that
• 58:59
  Speaker 1: we make it is quite long. So the most of
• 59:02
  Speaker 1: our capital is either permanent capital, meaning we are the
• 59:07
  Speaker 1: manager of it forever, or it's very long dated in
• 59:10
  Speaker 1: the case of a closed end fund, where we have five,
• 59:13
  Speaker 1: seven or ten years to invest the capital, and that
• 59:16
  Speaker 1: affords us an advantage versus a number of other firms,
• 59:20
  Speaker 1: and that we can take a long term view, or
• 59:22
  Speaker 1: we can make a commitment that requires a long term
• 59:25
  Speaker 1: time horizon, and there's a lot of extra return to
• 59:28
  Speaker 1: be had if you're willing to take a longer view.
• 59:31
  Speaker 1: There's still a huge premium on liquidity in the market today,
• 59:34
  Speaker 1: there has been since the Global financial crisis. I think
• 59:37
  Speaker 1: the premium for ill liquidity today is as high as
• 59:40
  Speaker 1: I've ever seen in my career. So I think in
• 59:43
  Speaker 1: those investments the common thread is value. In our real
• 59:49
  Speaker 1: estate lending business, that's a function of what we do
• 59:51
  Speaker 1: on behalf of the insurance company that we manage assets for,
• 59:55
  Speaker 1: which is a related entity. In real estate lending, that's
• 59:59
  Speaker 1: all about avoiding loss. It's just super conservative.
• 1:00:02
  Speaker 2: Let's talk about taking a long term view. In the
• 1:00:05
  Speaker 2: middle of twenty twenty one, we're right in the middle
• 1:00:08
  Speaker 2: of the pandemic COVID lockdown, travel and tourism just collapse.
• 1:00:14
  Speaker 2: You guys say, hey, I know we should do. Let's
• 1:00:17
  Speaker 2: launch a billion and a half dollar fund, distressed travel
• 1:00:21
  Speaker 2: and tourism fund with with people at Sataris Management. Tell
• 1:00:26
  Speaker 2: us a little bit about the c K Opportunities Fund.
• 1:00:29
  Speaker 1: You know, the thought process there on that fund, which
• 1:00:32
  Speaker 1: is you know closed now, was to raise money to
• 1:00:36
  Speaker 1: pursue opportunities in travel, leisure, and hospitality.
• 1:00:42
  Speaker 2: All of which, by the way, have come back gangbusters.
• 1:00:45
  Speaker 1: Most yes, most of it has a business travel still
• 1:00:48
  Speaker 1: lagging pretty significantly, but certainly personal travel is up dramatically,
• 1:00:54
  Speaker 1: you know, even Visa v twenty nineteen. And the thesis was,
• 1:00:58
  Speaker 1: you know, this isn't a permanent thing that we were
• 1:01:00
  Speaker 1: experiencing in twenty twenty would be temporary. The challenge was
• 1:01:03
  Speaker 1: going out and raising capital with two asset managers that
• 1:01:07
  Speaker 1: hadn't worked together before, and doing that capital raise entirely
• 1:01:11
  Speaker 1: over Zoom. That was new, but we did. I don't
• 1:01:15
  Speaker 1: think we had more than one or two in person
• 1:01:18
  Speaker 1: meetings for that capital raise. So it was a very
• 1:01:20
  Speaker 1: interesting time.
• 1:01:22
  Speaker 2: Did people say, Tom, what the hell are you doing?
• 1:01:24
  Speaker 2: You're nuts these businesses are or did people get it right.
• 1:01:28
  Speaker 1: Away now they said, you know, how do you know
• 1:01:30
  Speaker 1: it won't get worse? And if it does get worse,
• 1:01:33
  Speaker 1: you know, we lose money. I think everyone sort of
• 1:01:36
  Speaker 1: acknowledged that if travel was dead forever, we had much
• 1:01:41
  Speaker 1: bigger problems.
• 1:01:42
  Speaker 2: Yeah.
• 1:01:42
  Speaker 1: Right, And so the general view was, if I'm going
• 1:01:45
  Speaker 1: to take a risk, I may as well take it
• 1:01:47
  Speaker 1: in an area that is more likely than not to rebound.
• 1:01:49
  Speaker 1: And so what was in common on us is finding
• 1:01:51
  Speaker 1: the opportunities where we could say with a straight face,
• 1:01:53
  Speaker 1: we don't think we can lose money. We think we
• 1:01:55
  Speaker 1: have a lot of upside, and so that's what we
• 1:01:58
  Speaker 1: endeavored to pursue.
• 1:01:59
  Speaker 2: So it's all only been two years. Is this a
• 1:02:01
  Speaker 2: seven year fund or a five year fund?
• 1:02:03
  Speaker 1: Well, the goal is to is to have you know,
• 1:02:05
  Speaker 1: begin returning capital in kind of use years two and three,
• 1:02:09
  Speaker 1: and ultimately have the average duration of that fund between
• 1:02:12
  Speaker 1: three and five years. So some of us, some investments
• 1:02:16
  Speaker 1: will ultimately go a bit longer, some will hopefully pay
• 1:02:20
  Speaker 1: out more quickly, but with the average sort of in
• 1:02:23
  Speaker 1: that you know, mid single digit zip code or less.
• 1:02:25
  Speaker 2: So two years post launch, how's it going.
• 1:02:29
  Speaker 1: It's it's it's gone very well. Our returns have been
• 1:02:32
  Speaker 1: well above what we had you know, what we had
• 1:02:35
  Speaker 1: targeted when we when we spoke with r LPs about it,
• 1:02:39
  Speaker 1: and so we're excited. We love the portfolio, We love
• 1:02:42
  Speaker 1: the forward on the portfolio, very very constructive on each
• 1:02:45
  Speaker 1: of the names and in the portfolio. I don't really regret,
• 1:02:48
  Speaker 1: you know, any of the investments. I think we'll have
• 1:02:51
  Speaker 1: some that are better than others. But you know, we're
• 1:02:53
  Speaker 1: we're quite excited about it.
• 1:02:54
  Speaker 2: Let's talk about another sort of contrarian distressed investing play.
• 1:03:00
  Speaker 2: Had this horrific and infamous California fire called the Campfire.
• 1:03:06
  Speaker 2: Soon after PG and E, the giant power provider there,
• 1:03:11
  Speaker 2: ends up filing for bankruptcy. They were blamed as one
• 1:03:15
  Speaker 2: of the possible causes of the wildfire. Who looks at
• 1:03:19
  Speaker 2: that and says, hey, this is an amazing opportunity. The biggest,
• 1:03:23
  Speaker 2: one of the biggest power producers in the country has
• 1:03:26
  Speaker 2: gone belly up. How do I get me some of that?
• 1:03:29
  Speaker 2: And did you look at that from the bonds pre
• 1:03:33
  Speaker 2: bankruptcy or equity post bankruptcy.
• 1:03:35
  Speaker 1: We looked at it as at the equity little bit
• 1:03:39
  Speaker 1: pre bankruptcy, and then grew our position following the bankruptcy.
• 1:03:43
  Speaker 1: And the thesis was that there would be a way
• 1:03:46
  Speaker 1: to ensure that the victims received fair compensation but still
• 1:03:53
  Speaker 1: allowed for the equity to have some upside. And you know,
• 1:03:57
  Speaker 1: the thesis was, let's let's strike deal with the victims attorneys,
• 1:04:03
  Speaker 1: and let's strike deals with the regulators and the government,
• 1:04:07
  Speaker 1: and strike deals with the bondholders and move the company
• 1:04:09
  Speaker 1: through bankruptcy. So very very contentious negotiation, I can imagine,
• 1:04:14
  Speaker 1: and particularly given that it moved into the spring of
• 1:04:17
  Speaker 1: twenty twenty, so we were, you know, we were trying
• 1:04:20
  Speaker 1: to get that restructuring done in the depths of COVID.
• 1:04:23
  Speaker 1: It ultimately worked, It was a it was a good
• 1:04:24
  Speaker 1: investment for us where you know, we monetized that and
• 1:04:28
  Speaker 1: redeployed the capital elsewhere. You know, our goal was in
• 1:04:31
  Speaker 1: that case to sort of fix what we could fix
• 1:04:34
  Speaker 1: and then and then move on. And so I think,
• 1:04:37
  Speaker 1: you know, we're quite proud of of the work that
• 1:04:41
  Speaker 1: went into that and ultimately think that you know, each
• 1:04:44
  Speaker 1: of the stakeholder groups came away satisfied, or at least
• 1:04:47
  Speaker 1: that's what they represented to us.
• 1:04:49
  Speaker 2: Let's talk about another investment that you referenced earlier. Hurts,
• 1:04:55
  Speaker 2: a former Fortune five hundred company files for bankruptcy pretty
• 1:05:00
  Speaker 2: early in the pandemic May twenty twenty. Subsequently, they sell
• 1:05:04
  Speaker 2: off their fleet to cars because we're just not getting
• 1:05:07
  Speaker 2: new cars. What made you think, oh, this dumpster fire
• 1:05:11
  Speaker 2: is a great opportunity.
• 1:05:13
  Speaker 1: Yeah, that one was really predicated on three key tenants.
• 1:05:18
  Speaker 1: One was that there was an opportunity to electrify a
• 1:05:20
  Speaker 1: big chunk of the fleet, which required us, you know,
• 1:05:23
  Speaker 1: cutting deals with major OEMs to get access to that supply.
• 1:05:27
  Speaker 1: The second was in pursuing a new, if you will,
• 1:05:31
  Speaker 1: line of business for the company in providing cars to
• 1:05:36
  Speaker 1: ride hail drivers. And then the third would be a
• 1:05:39
  Speaker 1: more effective way of disposing of the vehicles when you
• 1:05:42
  Speaker 1: come to the end of their life, and that required
• 1:05:44
  Speaker 1: cutting a deal with Carvana. All of those initiatives are
• 1:05:47
  Speaker 1: well underway. We're really happy with all of them. Our partners,
• 1:05:50
  Speaker 1: you know, in Carvana and Uber, Tesla, GM, Pollstar are
• 1:05:55
  Speaker 1: all going really really well, and we have a great
• 1:05:59
  Speaker 1: leadership team that's Steven Share is running. That's doing an
• 1:06:02
  Speaker 1: exceptional job and in prosecuting that business plan, and so
• 1:06:06
  Speaker 1: you know that was really predicated on those three core tenants.
• 1:06:10
  Speaker 1: Now what happened was a bit of luck, and the
• 1:06:13
  Speaker 1: luck was that we had a massive chip shortage and
• 1:06:17
  Speaker 1: so the price the new cars became unavailable, use cars
• 1:06:20
  Speaker 1: rocketed up in values, so we over earned for a
• 1:06:23
  Speaker 1: period of a couple of years, really were able to
• 1:06:26
  Speaker 1: de risk the investment. So the you know, our this
• 1:06:29
  Speaker 1: is all public. Our our ownership of the company immediately
• 1:06:33
  Speaker 1: following the ip I was about thirty seven percent. We
• 1:06:36
  Speaker 1: we announced a large buyback and and you know today
• 1:06:40
  Speaker 1: our ownership stands in the in the high fifties percent
• 1:06:43
  Speaker 1: if I remember correctly. So you know, that's that's a
• 1:06:47
  Speaker 1: you know, an ability where we didn't you know, we
• 1:06:50
  Speaker 1: didn't have to put new dollars to work. We were
• 1:06:52
  Speaker 1: simply reinvesting the cash flow of the company, and all
• 1:06:56
  Speaker 1: all shareholders that held you know, have benefited by owning
• 1:06:59
  Speaker 1: a larger percentage the company without having to put any
• 1:07:01
  Speaker 1: more capital to work. So you know, I think, you know,
• 1:07:04
  Speaker 1: we're really pleased about the forward on that one. We're
• 1:07:08
  Speaker 1: excited about the prospects of the business to continue growing
• 1:07:11
  Speaker 1: and these new lines of business and ultimately I think
• 1:07:14
  Speaker 1: it will pay enormous dividends.
• 1:07:15
  Speaker 2: Let me talk about a space that is a little
• 1:07:18
  Speaker 2: off the beaten path for you guys, long short, evergreen
• 1:07:22
  Speaker 2: fund that just seems so separate and different from what
• 1:07:26
  Speaker 2: you guys have done with distressed assets.
• 1:07:30
  Speaker 1: Yeah, you know, our legacy hedge fund is a long
• 1:07:33
  Speaker 1: short vehicle. It's hedged. The rationale there is that not
• 1:07:38
  Speaker 1: every investor wants a long only set of assets that
• 1:07:42
  Speaker 1: has more volatility and down markets. So the hedge fund
• 1:07:45
  Speaker 1: has less volatility, but obviously you have a cost of
• 1:07:47
  Speaker 1: hedging associated with it, and there are certain investors for
• 1:07:51
  Speaker 1: whom that is exactly the right product. And so it's
• 1:07:54
  Speaker 1: a part of the business that we will always pursue
• 1:07:57
  Speaker 1: because we can still do some of the some of
• 1:07:59
  Speaker 1: the same things on the event and alongside that we
• 1:08:01
  Speaker 1: do in our and our closed end funds and our
• 1:08:04
  Speaker 1: permanent capitol vehicles, but on a more hedge basis.
• 1:08:07
  Speaker 2: Huh really quite quite fascinating. So first, you know, we
• 1:08:11
  Speaker 2: talked a little bit about you being a CPA at
• 1:08:13
  Speaker 2: Ernst and Young in Massachusetts, but I also noticed you
• 1:08:17
  Speaker 2: were a CPA at one of my favorite places in
• 1:08:20
  Speaker 2: the world, the Cayman Islands. Was that just to service
• 1:08:24
  Speaker 2: offshore hedge funds? Or how did that come about?
• 1:08:27
  Speaker 1: It's a it's a kind of a funny story. I was.
• 1:08:30
  Speaker 1: I was based out of the Boston office working for
• 1:08:33
  Speaker 1: Instant Young and I came to New York. I shouldn't
• 1:08:36
  Speaker 1: say it can New York. I was. I was asked
• 1:08:38
  Speaker 1: quote unquote meaning I was told to come to New York,
• 1:08:41
  Speaker 1: go to New York work on a project there. And
• 1:08:44
  Speaker 1: that project was at an investment bank and taking a
• 1:08:46
  Speaker 1: look at their internal controls around derivative products. And what
• 1:08:51
  Speaker 1: you was this around was this would have been ninety four,
• 1:08:54
  Speaker 1: ninety five, and that's.
• 1:08:55
  Speaker 2: It, So derivative products there still were exits it back.
• 1:08:59
  Speaker 1: In the exactly early days. And I had had some
• 1:09:02
  Speaker 1: experience in valuing derivative contracts on an earlier project I
• 1:09:06
  Speaker 1: worked on. So I was sort of a unique individual
• 1:09:11
  Speaker 1: in the sense that I was a CPA who had
• 1:09:12
  Speaker 1: some of that experience back then. And so I came
• 1:09:15
  Speaker 1: to New York and it was my first exposure to
• 1:09:17
  Speaker 1: investment banks and trading floor. And I walked on to
• 1:09:21
  Speaker 1: the trading floor and I was like, I don't even
• 1:09:24
  Speaker 1: know what's going on either, but I have to do this.
• 1:09:26
  Speaker 1: And I remember walking back down to the room where
• 1:09:29
  Speaker 1: all the consultants and accounts were and I said, what
• 1:09:32
  Speaker 1: exactly doing up there? And guy explained, you know, sales trading,
• 1:09:35
  Speaker 1: and I said, I need to be a trader, That's
• 1:09:37
  Speaker 1: what I got to do. And the guy literally burst
• 1:09:38
  Speaker 1: out laughing. Right, He's like, you're never going to be
• 1:09:40
  Speaker 1: a trader on he said, your background's all wrong. You're
• 1:09:43
  Speaker 1: a CPA. You know, you didn't go to the right
• 1:09:45
  Speaker 1: Ivy League school. You didn't go to an Ivy League school.
• 1:09:48
  Speaker 1: And so I met up with a friend and said,
• 1:09:50
  Speaker 1: how do I become a trader? And this person was
• 1:09:53
  Speaker 1: doing recruiting at one of the big banks, and she's like, well,
• 1:09:55
  Speaker 1: you need some interesting experience. You got to get into
• 1:09:57
  Speaker 1: a top business school and then you got to do
• 1:09:59
  Speaker 1: an internship and then you can be a trader. And
• 1:10:01
  Speaker 1: so I'm like, oh my gosh, that's gonna take like
• 1:10:02
  Speaker 1: five years. Okay, I'm going to do that. So I
• 1:10:06
  Speaker 1: endeavored to, you know, find the right opportunity. So I'm
• 1:10:08
  Speaker 1: looking around. I can't really find anything, but I meet
• 1:10:11
  Speaker 1: a guy in this project who is from our Cayman
• 1:10:12
  Speaker 1: Island's office. So I go back, you know, to Boston.
• 1:10:15
  Speaker 1: I'm working in the office and I'll never forget this.
• 1:10:18
  Speaker 1: I'm I'm at my parents' house with their closest friends
• 1:10:21
  Speaker 1: on a Sunday afternoon, and I'm kind of bummed out
• 1:10:23
  Speaker 1: and my dad's best friend looks at me and he goes,
• 1:10:25
  Speaker 1: what's problem And I said, well, I'm unhappy with everything
• 1:10:29
  Speaker 1: in my life right now, like everything sucks. And he's like, well,
• 1:10:33
  Speaker 1: what do you want? And I'm like, ah, I can't happen.
• 1:10:35
  Speaker 1: He's like, no, you have to be able to say it.
• 1:10:37
  Speaker 1: What do you want? I said, Okay, want to know
• 1:10:38
  Speaker 1: what I want. I want to make this much money
• 1:10:40
  Speaker 1: X dollars, I want to live on the beach. I
• 1:10:43
  Speaker 1: want to own a boat, and I want to be
• 1:10:44
  Speaker 1: able to drive a jeep to work every day. That's
• 1:10:46
  Speaker 1: what I want, okay. And I was like, you know,
• 1:10:48
  Speaker 1: being the smartass and young man, and I thought, like,
• 1:10:51
  Speaker 1: you know, there, I kind of told him, and so
• 1:10:53
  Speaker 1: he just looked at me and didn't say anything, and
• 1:10:55
  Speaker 1: he goes, well, he goes, that door will be it
• 1:10:58
  Speaker 1: will be open or presented to you because the question
• 1:11:02
  Speaker 1: is do you have the guts to open it?
• 1:11:03
  Speaker 2: Wow?
• 1:11:04
  Speaker 1: And so I was like, what is he talking about? Right?
• 1:11:07
  Speaker 1: And so six months later, the opportunity arose to go
• 1:11:10
  Speaker 1: to work in the Cayman Islands. And this is pre
• 1:11:11
  Speaker 1: internet days, so I had to go down to the
• 1:11:13
  Speaker 1: local travel agent and pick up brochures that came in
• 1:11:16
  Speaker 1: out it just so I have some idea of where
• 1:11:18
  Speaker 1: it was, what it looked like sight unseen. I grabbed
• 1:11:21
  Speaker 1: my bags and I literally moved there. And within a
• 1:11:24
  Speaker 1: month of getting there, I had bought a jeep to
• 1:11:26
  Speaker 1: drive to work. I bought a little boat to me
• 1:11:27
  Speaker 1: no no top ye except in the summer it rained
• 1:11:30
  Speaker 1: all the time. You know, I lived on the beach
• 1:11:32
  Speaker 1: and I and I had a job that was paying me.
• 1:11:34
  Speaker 1: You know, what I felt was my you know that
• 1:11:37
  Speaker 1: my target pay back when I was a kid, and
• 1:11:40
  Speaker 1: and had I not done that, it wouldn't have led
• 1:11:42
  Speaker 1: to me getting the unique experience that ultimately allowed me
• 1:11:45
  Speaker 1: to get into Columbia Business School. And so it was
• 1:11:47
  Speaker 1: a life changing moment. But you know, my my dad's
• 1:11:50
  Speaker 1: friend was was exactly right, like that was not an
• 1:11:53
  Speaker 1: easy door to open because I had to take a
• 1:11:55
  Speaker 1: leap of faith that was pretty extraordinary back in that time.
• 1:11:58
  Speaker 1: Yet I didn't. I literally had no idea. There was
• 1:12:01
  Speaker 1: no ability to go on and look at trip Advisor
• 1:12:03
  Speaker 1: and see, you know where the restaurants were. I had
• 1:12:05
  Speaker 1: to go down their site on scene. I had a
• 1:12:06
  Speaker 1: couple of phone calls with folks that work down there,
• 1:12:09
  Speaker 1: and so it was a life changing set of experiences
• 1:12:12
  Speaker 1: for many reasons.
• 1:12:13
  Speaker 2: I got so many questions for you. So first, if
• 1:12:16
  Speaker 2: you didn't have that conversation with your dad's friends when
• 1:12:20
  Speaker 2: the opportunity came along, might it have passed you by?
• 1:12:23
  Speaker 2: Or did his words resonate over your head and you
• 1:12:26
  Speaker 2: just jumped at it because of that they resonated.
• 1:12:29
  Speaker 1: I mean, you know, I think in life, you know,
• 1:12:31
  Speaker 1: when I when I look at those key experiences, like
• 1:12:33
  Speaker 1: you know, we spoke earlier about my dad and the
• 1:12:37
  Speaker 1: question he asked me when I started my hedge fund,
• 1:12:39
  Speaker 1: or my dad's friend when he when he challenged me
• 1:12:42
  Speaker 1: to take the opportunity when it presented himself and he
• 1:12:44
  Speaker 1: had no idea what would be presented to me, nor
• 1:12:46
  Speaker 1: did I at that time, or or looking at my
• 1:12:49
  Speaker 1: uncle and his success in accounting. You know, those are
• 1:12:53
  Speaker 1: all small but incredibly important things in the sense that
• 1:12:56
  Speaker 1: they position you for success. Now, the question every young
• 1:13:00
  Speaker 1: person or person starting out has to ask is are
• 1:13:02
  Speaker 1: you willing to do what it takes? Then when you're
• 1:13:05
  Speaker 1: when you're you know, you set the path in motion
• 1:13:08
  Speaker 1: that the easy part is taken the first step. The
• 1:13:11
  Speaker 1: hard part is taking the steps in the middle of
• 1:13:13
  Speaker 1: the night, when you're up late working you haven't you know,
• 1:13:16
  Speaker 1: you haven't slept in two days and you're working on
• 1:13:18
  Speaker 1: a big project because you're trying to make a name
• 1:13:20
  Speaker 1: for yourself. Or the things that no one likes to
• 1:13:22
  Speaker 1: talk about, the miss golf trips with friends, the forgiven vacations,
• 1:13:26
  Speaker 1: the canceled trips you know, the missed birthday party for
• 1:13:30
  Speaker 1: a kid. You know, those are all the little, uh
• 1:13:35
  Speaker 1: sacrifices we make to achieve some level of success. I
• 1:13:39
  Speaker 1: think the goal is to minimize those things, or or
• 1:13:43
  Speaker 1: to focus your sacrifices in areas that aren't really that important.
• 1:13:46
  Speaker 2: So let me push back a little bit on your
• 1:13:50
  Speaker 2: characterization of your father's friend as a small thing that
• 1:13:55
  Speaker 2: was a giant attitude shift, that was a philosophical Well, hey,
• 1:14:00
  Speaker 2: there are opportunities in life that come along and you
• 1:14:03
  Speaker 2: have to grab the ring when it presents itself and
• 1:14:06
  Speaker 2: not sort of sit back and say, well, I'll wait
• 1:14:09
  Speaker 2: for the next train to come home along. That's a
• 1:14:11
  Speaker 2: huge philosophical change.
• 1:14:13
  Speaker 1: It was a small moment in time and a huge
• 1:14:17
  Speaker 1: shift in the course of my life. And you know,
• 1:14:21
  Speaker 1: I think I was always very motivated to work. I
• 1:14:25
  Speaker 1: was not always very motivated to study or do homework,
• 1:14:29
  Speaker 1: but I really like to work. And I worked a
• 1:14:31
  Speaker 1: lot in high school. I worked a lot in college.
• 1:14:33
  Speaker 1: I worked a lot after college and business school. I liked,
• 1:14:36
  Speaker 1: you know, working. I liked making money because it afforded
• 1:14:39
  Speaker 1: me freedoms that I didn't otherwise have. And so what
• 1:14:43
  Speaker 1: that question did was caused me to think to myself
• 1:14:47
  Speaker 1: about what risks I would have to take to get
• 1:14:50
  Speaker 1: to where I wanted to be. And it was a
• 1:14:52
  Speaker 1: very important lesson that ultimately resonated when it was time
• 1:14:56
  Speaker 1: for me to think about starting my own business.
• 1:14:58
  Speaker 2: So you were in the cane means in the mid
• 1:15:01
  Speaker 2: nineties for for how long.
• 1:15:02
  Speaker 1: Will you there? Two years? And I would say that
• 1:15:06
  Speaker 1: it sounds better and more exciting and in practice, you know,
• 1:15:10
  Speaker 1: in in theory than it is in practice.
• 1:15:13
  Speaker 2: Come on, is it is there a better burger in
• 1:15:15
  Speaker 2: the world than the Sunshine Grill.
• 1:15:17
  Speaker 1: No, there are some pretty spectacular places to go in there,
• 1:15:20
  Speaker 1: and it was it was enormous fun. You know, you
• 1:15:22
  Speaker 1: have to kind of settle into whatever routine is best
• 1:15:25
  Speaker 1: for you. I was, you know that, I you know,
• 1:15:27
  Speaker 1: you can only kind of go out every night in
• 1:15:29
  Speaker 1: the week for for so long. And you know, some people,
• 1:15:32
  Speaker 1: I guess can do that forever. I was not wanted.
• 1:15:34
  Speaker 2: Nobody can do it, but eventually, eventually, right.
• 1:15:37
  Speaker 1: Yeah, but I I got really into scuba diving, I
• 1:15:39
  Speaker 1: got I got really into martial arts, and those were
• 1:15:42
  Speaker 1: things that helped me, you know, create some balance in
• 1:15:46
  Speaker 1: my life at that time. I haven't. You know, those
• 1:15:49
  Speaker 1: are things that I that I don't still participate in
• 1:15:51
  Speaker 1: today for a variety of reasons. You know, showing up
• 1:15:54
  Speaker 1: to work with cracked ribs is not super comfortable. But
• 1:15:57
  Speaker 1: you know, I think the you know, the the ability
• 1:16:00
  Speaker 1: to to branch out and experience and try new things
• 1:16:03
  Speaker 1: in any doesn't matter where you live, those are great
• 1:16:05
  Speaker 1: things to do. And living in a place that is
• 1:16:08
  Speaker 1: very culturally different than what you experienced and I was
• 1:16:11
  Speaker 1: definitively a minority in every way. There were very few
• 1:16:15
  Speaker 1: Americans there.
• 1:16:15
  Speaker 2: A lot of Canadians, tons.
• 1:16:17
  Speaker 1: Of Canadians, lots of lots of you know Brits, right,
• 1:16:19
  Speaker 1: so you know meaning.
• 1:16:21
  Speaker 2: I mean it's a British territory. I think it's independent,
• 1:16:25
  Speaker 2: but there are photos of the Queen.
• 1:16:28
  Speaker 1: Governor. You know they're disappointed by now the king and
• 1:16:33
  Speaker 1: you know it's it's a it's a very interesting, very
• 1:16:35
  Speaker 1: close ties to the UK. And so you know, it
• 1:16:38
  Speaker 1: was it was a really fascinating place not only to
• 1:16:41
  Speaker 1: work and to recreate, but also to be part of society.
• 1:16:43
  Speaker 1: I learned a lot some incredible lessons taken from my
• 1:16:47
  Speaker 1: time there. So it was a great two years and
• 1:16:49
  Speaker 1: and I you know, truly life changing period.
• 1:16:53
  Speaker 2: I have a bunch of friends who were in finance
• 1:16:56
  Speaker 2: and banking from Canada and they go down there for
• 1:16:59
  Speaker 2: a spell and they never leave. So not only is
• 1:17:02
  Speaker 2: the Grand Cayman's the first place I've ever had poutine,
• 1:17:05
  Speaker 2: but hold that aside. Over the past twenty years, the
• 1:17:11
  Speaker 2: island has just completely transformed. You have the Dart family
• 1:17:16
  Speaker 2: that it flip over a styrofoam cup, it says dark.
• 1:17:20
  Speaker 2: It's that that family that have just invested literally billions
• 1:17:24
  Speaker 2: and billions of dollars. The island is practically South Florida.
• 1:17:30
  Speaker 2: I mean it's very modern, very contemporary and beautiful, and
• 1:17:34
  Speaker 2: every time I think about buying something down there, it's
• 1:17:40
  Speaker 2: an island is the only problem. So getting anything there
• 1:17:44
  Speaker 2: do they still have like a fifty or tax on
• 1:17:48
  Speaker 2: bringing even like an old clunker jeep, you're gonna pay
• 1:17:52
  Speaker 2: double the price.
• 1:17:53
  Speaker 1: Big big tax on vehicles. There no income tax though,
• 1:17:57
  Speaker 1: so for for US citizens you have a limit. But
• 1:18:01
  Speaker 1: in most other countries they're not taxing their worldwide income.
• 1:18:04
  Speaker 1: So if your UK s is in or Australian, or
• 1:18:07
  Speaker 1: South African or Canadian which constituted a lot of the
• 1:18:10
  Speaker 1: employees there, you know you're running tax free income forever.
• 1:18:13
  Speaker 1: Now you pay effectively your taxes through consumption.
• 1:18:17
  Speaker 2: Taxes plus the stamp tax to purchase property is another thing.
• 1:18:21
  Speaker 2: Turks and Caicos has a very similar sort of financial setup.
• 1:18:24
  Speaker 2: By the way, two of the most beautiful areas when
• 1:18:28
  Speaker 2: you look at whether it's sailing or snorkeling or scuba diving,
• 1:18:32
  Speaker 2: second to none, and maybe the Great Barrier Reef is
• 1:18:35
  Speaker 2: the closest thing.
• 1:18:35
  Speaker 1: Camman's amazing in that regard. Now, what they've also done
• 1:18:38
  Speaker 1: is they've they've worked really hard to build a real
• 1:18:40
  Speaker 1: financial services sector there. So our insurance company is actually
• 1:18:43
  Speaker 1: based there, our employees are there. We have a prime
• 1:18:47
  Speaker 1: you know, a primate. It's not a reinsurance subsidiary. It's
• 1:18:49
  Speaker 1: a real primary insurer that's located and came out and
• 1:18:52
  Speaker 1: and we, you know, ultimately became comfortable with that jurisdiction
• 1:18:55
  Speaker 1: because I had contacts there and we're able to you know,
• 1:18:58
  Speaker 1: people I maintained contact with from my time there. That
• 1:19:01
  Speaker 1: gave us great comfort in what they were doing and
• 1:19:03
  Speaker 1: building out the insurance industry. And it's been a fantastic jurisdiction.
• 1:19:06
  Speaker 1: And I always say when people ask you your insurance
• 1:19:08
  Speaker 1: company is based on the Cayman Islands, I said, listen,
• 1:19:10
  Speaker 1: if I put a blindfold on you and I take
• 1:19:12
  Speaker 1: you there, and I removed the blindfold outside our office,
• 1:19:14
  Speaker 1: you will swear you're in coconut growth, right like you
• 1:19:16
  Speaker 1: won't for a second think that you're not in South Florida.
• 1:19:19
  Speaker 1: And it's become very much a first world financial hub.
• 1:19:23
  Speaker 1: And you know, I would not be surprised to see
• 1:19:25
  Speaker 1: its growth continue unabated for the next couple decades.
• 1:19:29
  Speaker 2: First World healthcare, first world Internet, first world financials network
• 1:19:33
  Speaker 2: hard to be. Since you mentioned the insurance company, I
• 1:19:36
  Speaker 2: got to ask, you're running a hedge fund. Why an
• 1:19:39
  Speaker 2: insurance business. Is it the float to play with the
• 1:19:42
  Speaker 2: way Buffett does with Geico, or how does this interlate
• 1:19:47
  Speaker 2: with the rest of the business.
• 1:19:48
  Speaker 1: So it's an annuity business, so unlike property and casualty
• 1:19:51
  Speaker 1: were the key is, you know, making money by underwriting
• 1:19:56
  Speaker 1: your risk very very efficiently and earning a profit. You're
• 1:20:00
  Speaker 1: underwriting in an annuity business. It's a it's a spread business.
• 1:20:03
  Speaker 1: So we're taking capital in, we're investing it. We owe
• 1:20:07
  Speaker 1: our annuity holders a fixed return, so we have to
• 1:20:12
  Speaker 1: manage to make a higher return on our diversefied pool
• 1:20:15
  Speaker 1: of assets than what we are required to pay out
• 1:20:18
  Speaker 1: to the annuity holder. That's the whole game, and that
• 1:20:20
  Speaker 1: that comports very well with our strategy of deep value
• 1:20:24
  Speaker 1: investing and looking for opportunities where we can preserve capital
• 1:20:28
  Speaker 1: not lose money. You know, again comes back to that
• 1:20:30
  Speaker 1: same that same core thesis. So the draw initially was
• 1:20:35
  Speaker 1: the duration of the capital you start an insurance company,
• 1:20:39
  Speaker 1: so long as you you know, maintain control of the assets,
• 1:20:41
  Speaker 1: you know they're effectively permanent assets, right, and and again
• 1:20:45
  Speaker 1: going back to that point about the excess return that
• 1:20:48
  Speaker 1: you can earn by having long data capital, it's really
• 1:20:50
  Speaker 1: an extraordinary pickup in total yield. And so we you know,
• 1:20:56
  Speaker 1: this is the most exciting thing we do, but we're
• 1:20:58
  Speaker 1: thrilled about it.
• 1:20:58
  Speaker 2: I would never have guessed that. I have to ask
• 1:21:00
  Speaker 2: the obvious question, since we've seen a five hundred basis
• 1:21:04
  Speaker 2: point bump in rates, what do higher rates do for
• 1:21:08
  Speaker 2: running an insurance book.
• 1:21:10
  Speaker 1: Yeah, for the annuity business, it's the spread between the
• 1:21:14
  Speaker 1: assets that we're buying and the annuity rates. So while
• 1:21:16
  Speaker 1: the annuity rates have gone up by quite a bit,
• 1:21:18
  Speaker 1: the yield and the assets we're buying has gone up
• 1:21:21
  Speaker 1: by slightly more. So our total return to the equity
• 1:21:24
  Speaker 1: has increased. So I would say that this environment is
• 1:21:27
  Speaker 1: just about perfect for the insurance business.
• 1:21:30
  Speaker 2: Huh. All right, So let's talk about a different business
• 1:21:32
  Speaker 2: line that I'm kind of fascinated by. Ever since the
• 1:21:35
  Speaker 2: pandemic ends, it looks like commercial real estate has been
• 1:21:40
  Speaker 2: poised on the brink of disaster, especially offices. How do
• 1:21:46
  Speaker 2: you look at CRE and what sort of opportunities are
• 1:21:50
  Speaker 2: are there in the world of real estate.
• 1:21:52
  Speaker 1: Yeah, you know, we will definitely be heavily involved there
• 1:21:57
  Speaker 1: if the sector or if individual opportunities become distracts. I
• 1:22:01
  Speaker 1: think we're taking a wait and see and very patient
• 1:22:04
  Speaker 1: approach right now. We're trying to sort out what work
• 1:22:09
  Speaker 1: from home means for a demand for office space. It's
• 1:22:13
  Speaker 1: just challenging, right It's not as if people working three
• 1:22:15
  Speaker 1: days a week, you still need the same amount office
• 1:22:17
  Speaker 1: if they're all there at the same time. So, you know,
• 1:22:20
  Speaker 1: what it means is utilization has shifted. We may need
• 1:22:23
  Speaker 1: to change the way that we use offices. We're spending
• 1:22:26
  Speaker 1: a lot of time thinking about that. We need to
• 1:22:27
  Speaker 1: change the places where we have offices. So we have
• 1:22:31
  Speaker 1: more people working outside of New York now than ever before,
• 1:22:36
  Speaker 1: and we're perfectly comfortable with that. We provide greater flexibility
• 1:22:40
  Speaker 1: and where people work from. But I think as it
• 1:22:43
  Speaker 1: relates to CIRE, you know, the two big components are
• 1:22:46
  Speaker 1: answering that first question around aggregate demand, and then the
• 1:22:48
  Speaker 1: second is answering questions around you know, are some cities
• 1:22:53
  Speaker 1: and jurisdictions poised for more success than others, will some
• 1:22:56
  Speaker 1: be more permanently challenged? Those are the big unknown You know,
• 1:23:00
  Speaker 1: we need some real restructuring in some of our major
• 1:23:04
  Speaker 1: cities to make them attractive for business again.
• 1:23:06
  Speaker 2: Yah San Francisco and Saint Louis stand out is two
• 1:23:10
  Speaker 2: real basket cases. New York seems to be coming back.
• 1:23:13
  Speaker 2: Raises the question of those that if you're there three
• 1:23:16
  Speaker 2: days a week, can you do the sort of hot
• 1:23:19
  Speaker 2: desk that allows you to use half the space? Hey,
• 1:23:23
  Speaker 2: your Monday, Wednesday, Friday. This person is Tuesday Thursday and
• 1:23:27
  Speaker 2: everybody is in pick a day Wednesday. Do you really need,
• 1:23:32
  Speaker 2: you know, a thousand desks for a thousand employees or
• 1:23:35
  Speaker 2: can you get away with six hundred desks?
• 1:23:37
  Speaker 1: If you have everybody in that one day a week,
• 1:23:38
  Speaker 1: you need the thousand desks. The question is do you
• 1:23:41
  Speaker 1: need as many offices? Do you need as many conference rooms?
• 1:23:44
  Speaker 1: That's an unknown and I think we're all every business.
• 1:23:48
  Speaker 1: It's not just the commercial real estate companies that are
• 1:23:51
  Speaker 1: thinking about it. We're all thinking about it because either
• 1:23:53
  Speaker 1: you're a provider of that capacity or a user of
• 1:23:56
  Speaker 1: that capacity, and both sides of the equation have to
• 1:23:58
  Speaker 1: make a determination as to what the appropriate level of
• 1:24:03
  Speaker 1: space is. And we're in that boat with everybody else.
• 1:24:07
  Speaker 1: So I think for us in commercial real estate, we
• 1:24:10
  Speaker 1: haven't seen any opportunities that have really caught our eye yet,
• 1:24:14
  Speaker 1: but it's definitely an area to watch.
• 1:24:16
  Speaker 2: No doubt about it. I'm kind of fascinated that return
• 1:24:19
  Speaker 2: to office at least in the metropolitan areas are fifty
• 1:24:22
  Speaker 2: five to sixty percent in the US, but Europe is
• 1:24:25
  Speaker 2: running ninety ninety five percent. Whether that's better mass transit,
• 1:24:29
  Speaker 2: shorter commutes, or smaller houses where you can't just set
• 1:24:33
  Speaker 2: up a home office as easily as we do here.
• 1:24:35
  Speaker 1: Well, it's a good point. I think it's I think
• 1:24:36
  Speaker 1: it's probably a combination of those factors. Also some societal
• 1:24:42
  Speaker 1: differences as it relates to what's accepted. I mean, if
• 1:24:44
  Speaker 1: you if you go to London, there are a few
• 1:24:47
  Speaker 1: things that really stand out. One that this casual address
• 1:24:52
  Speaker 1: is not something that's been as fully adopted. Oh really, no,
• 1:24:56
  Speaker 1: it's it's.
• 1:24:56
  Speaker 2: I mean, just for the record, you and I are
• 1:24:58
  Speaker 2: both in white shirts, yeah, darker blue blazers. I'm wearing jeans,
• 1:25:04
  Speaker 2: you're wearing khakis. But would do either us really ever
• 1:25:08
  Speaker 2: wear a tie unless we're presenting at some event where
• 1:25:11
  Speaker 2: it says suit and tie.
• 1:25:12
  Speaker 1: Yeah? No, And if you go to London and you're
• 1:25:14
  Speaker 1: in you know, in the center of in this London city,
• 1:25:18
  Speaker 1: you'll see a lot of people in suits, more than
• 1:25:20
  Speaker 1: you see in New York and so there's a level
• 1:25:23
  Speaker 1: of formality perhaps that exists there. It's also an incredibly
• 1:25:28
  Speaker 1: vibrant place to city centers in the UK are you know,
• 1:25:32
  Speaker 1: fully back relative to to pre pandemic. So you know,
• 1:25:37
  Speaker 1: we've got to think about whether or not we're doing
• 1:25:40
  Speaker 1: our broader community a favor or a disservice by not
• 1:25:45
  Speaker 1: being in our city centers as much as we were
• 1:25:48
  Speaker 1: a pre pandemic. And that goes beyond simply what's best
• 1:25:51
  Speaker 1: for work and can you get the work done? No,
• 1:25:53
  Speaker 1: it's can you develop the young talent? Right? Are you
• 1:25:57
  Speaker 1: supporting your metropolitan area? Meaning all of those businesses that
• 1:26:00
  Speaker 1: rely on the people coming in and out. All of
• 1:26:03
  Speaker 1: these things are really important and it can't just flip
• 1:26:06
  Speaker 1: a light switch and make it all change instantaneously. If
• 1:26:08
  Speaker 1: you're going to shift the way those things happen, you
• 1:26:11
  Speaker 1: have to plan for it. You have to think about
• 1:26:12
  Speaker 1: how you're going to train your young people. You have
• 1:26:13
  Speaker 1: to think about how businesses can move from city centers
• 1:26:16
  Speaker 1: out to the local communities where people will spend an
• 1:26:18
  Speaker 1: increasing period of time. So I believe that we will
• 1:26:23
  Speaker 1: see some level of deurbanization over time, deurbanization, and I
• 1:26:28
  Speaker 1: think it's there's a variety of reasons for it. A
• 1:26:31
  Speaker 1: lot of it's based on our views on mobility. I
• 1:26:34
  Speaker 1: think that you know, as we see greater levels of automation,
• 1:26:37
  Speaker 1: as we see greater levels of electrification, which are tied
• 1:26:40
  Speaker 1: hand in hand, it'll become easier to travel, it's not
• 1:26:44
  Speaker 1: as much of a burden. People will be able to
• 1:26:46
  Speaker 1: live and commute more, particularly if they're not commuting five
• 1:26:49
  Speaker 1: days a week. So there's a lot of big changes
• 1:26:51
  Speaker 1: that I think will occur over the next ten or
• 1:26:53
  Speaker 1: fifteen years. The worst thing we can do is try
• 1:26:56
  Speaker 1: to force those changes in twelve or twenty four months
• 1:26:58
  Speaker 1: too fast.
• 1:26:58
  Speaker 2: Professor Scott Galloway it and while you Stern talks about
• 1:27:03
  Speaker 2: the disservice we do to the youngest employees who need
• 1:27:07
  Speaker 2: to come in, learn the ropes, be mentored, actually have
• 1:27:10
  Speaker 2: some FaceTime. You know, if you're old folks like us
• 1:27:14
  Speaker 2: and you've been doing this for a number of decades,
• 1:27:16
  Speaker 2: you don't have to be in the office five days
• 1:27:18
  Speaker 2: a week, two or three days as plenty. But if
• 1:27:20
  Speaker 2: you're early in your career and you talked about what
• 1:27:23
  Speaker 2: it was like at Credit Swiss and at Goldman, that's
• 1:27:26
  Speaker 2: a loss. For people who are not there every day.
• 1:27:28
  Speaker 1: It's a massive loss. If you're learning from your more
• 1:27:32
  Speaker 1: experienced co workers and you're only there three days a week,
• 1:27:37
  Speaker 1: there's some forty percent of your time is without the
• 1:27:39
  Speaker 1: direct contact, and so there's going to be some diminution
• 1:27:42
  Speaker 1: in your ability to ramp up. I don't know whether
• 1:27:44
  Speaker 1: it's a forty percent or whether it's a fraction of
• 1:27:46
  Speaker 1: forty percent not zero.
• 1:27:48
  Speaker 2: It's a real chunce, all right. So before we get
• 1:27:51
  Speaker 2: to our favorite questions, I got to throw you one curveball.
• 1:27:55
  Speaker 2: You sit on a number of different boards, including the
• 1:27:57
  Speaker 2: board of trustees at Villanova, but you're also a board
• 1:28:01
  Speaker 2: member of the Navy Seal Foundation. How does this come about?
• 1:28:05
  Speaker 2: Tell us a little bit about that experience.
• 1:28:07
  Speaker 1: Yeah, the last person that I hired at Goldman was
• 1:28:10
  Speaker 1: a seven year veteran of the Seal teams and was
• 1:28:13
  Speaker 1: one of the early board members at the Seal Foundation
• 1:28:17
  Speaker 1: and introduced me to the organization. And so for the
• 1:28:20
  Speaker 1: last ten twelve years I've been involved as a as
• 1:28:25
  Speaker 1: a supporter and host of their New York City gala,
• 1:28:29
  Speaker 1: and then earlier this year I was asked to join
• 1:28:31
  Speaker 1: the board, which is an unbelievable honor for me. It's
• 1:28:38
  Speaker 1: a way to support folks that I have a great
• 1:28:42
  Speaker 1: deal of respect for for a whole variety of reasons,
• 1:28:46
  Speaker 1: but you know, it was at its core a way
• 1:28:50
  Speaker 1: for me to get involved with a community that took
• 1:28:54
  Speaker 1: action following nine to eleven, which had, you know, as
• 1:28:58
  Speaker 1: we mentioned early, a profound impact on me and and
• 1:29:02
  Speaker 1: folks that frankly, as I got to know, I came
• 1:29:05
  Speaker 1: to really like they're not what I think the average
• 1:29:09
  Speaker 1: person views them to be. These these are very much
• 1:29:13
  Speaker 1: the the you know, the guy next door, You know
• 1:29:16
  Speaker 1: that that young person that you knew growing up that
• 1:29:19
  Speaker 1: was kind of always doing the right thing and was
• 1:29:22
  Speaker 1: very steadfast in their views and and and unwavering in
• 1:29:26
  Speaker 1: their commitment. That that seems to be a common thread
• 1:29:28
  Speaker 1: that I found with some of those, these these men
• 1:29:31
  Speaker 1: and the teams professionals.
• 1:29:32
  Speaker 2: Yes, so when I was on the trading desk, the
• 1:29:36
  Speaker 2: head trader was a former Marine jungle combat instructor. The
• 1:29:40
  Speaker 2: guy I left was a seal, The guy next to
• 1:29:42
  Speaker 2: him was a ranger.
• 1:29:43
  Speaker 1: Yep.
• 1:29:43
  Speaker 2: So the four of we would go out for drinks afterwards,
• 1:29:46
  Speaker 2: and I could be a wise ass at aar because
• 1:29:49
  Speaker 2: no people would look at us, and they'd look at
• 1:29:51
  Speaker 2: me like that guy's a wisess. I should slap him,
• 1:29:53
  Speaker 2: and then they look at you the saw of me.
• 1:29:55
  Speaker 2: Maybe best to not get involved in them. Yeah, yeah,
• 1:29:58
  Speaker 2: I got away with a lot of But the word
• 1:30:01
  Speaker 2: that always stood out is these were just consummate professionals.
• 1:30:05
  Speaker 2: They had a task to do, they knew how to
• 1:30:07
  Speaker 2: go about doing it. And there are some fascinating parallels
• 1:30:11
  Speaker 2: between those services and traded about going and prepared thinking
• 1:30:16
  Speaker 2: about plan b's, being able to make decisions under pressure.
• 1:30:21
  Speaker 2: It's really quite fascinating, though it is. That must be
• 1:30:23
  Speaker 2: an amazing experience working with them.
• 1:30:25
  Speaker 1: It is, and you know, it's it just that's the
• 1:30:28
  Speaker 1: community that I became connected to. There are lots of
• 1:30:33
  Speaker 1: service members across our different branches that are equally worthy
• 1:30:37
  Speaker 1: of our respect, And you know, I think it was
• 1:30:41
  Speaker 1: my way, as I said, of doing something to serve
• 1:30:44
  Speaker 1: people who so selflessly serve all of us.
• 1:30:47
  Speaker 2: Huh, really really great stuff. So I know I only
• 1:30:50
  Speaker 2: have you for a finite amount of time. Let's jump
• 1:30:53
  Speaker 2: to our favorite questions that we ask all of our guests,
• 1:30:56
  Speaker 2: starting with tell us what you've been watching or listening
• 1:30:59
  Speaker 2: to lately? What kept you entertain since the pandemic on
• 1:31:04
  Speaker 2: either Netflix or Amazon or whatever the fam is enjoying?
• 1:31:09
  Speaker 1: Yeah, you know, it's funny, of course, you know a
• 1:31:11
  Speaker 1: lot of the very popular shows we've we've watched and
• 1:31:17
  Speaker 1: you know, I think, you know, shows like ted Lasso
• 1:31:20
  Speaker 1: or Funny, you know some good lessons in there that
• 1:31:23
  Speaker 1: that one's been very enjoyable. The ones that I've watched
• 1:31:26
  Speaker 1: more recently that I think are great, or the prequels
• 1:31:29
  Speaker 1: to Yellowstone, I really.
• 1:31:32
  Speaker 2: Sixty three, eighteen eighty three and Early is the same
• 1:31:37
  Speaker 2: as wrong.
• 1:31:38
  Speaker 1: Yes, nineteen twenty three, I think is the other one,
• 1:31:41
  Speaker 1: And you know they I'm a big fan of the
• 1:31:43
  Speaker 1: American West, a Mountain West. I spent a lot of
• 1:31:46
  Speaker 1: time in Montana, and so those really resonated with me.
• 1:31:51
  Speaker 1: And what I liked about the prequels is, you know,
• 1:31:54
  Speaker 1: while you know, a story told in a Hollywood sense,
• 1:31:57
  Speaker 1: they give some insight into just how difficult and different
• 1:32:01
  Speaker 1: time was then, particularly in that part of our country,
• 1:32:04
  Speaker 1: how hard it was and I just think the stories
• 1:32:07
  Speaker 1: are fascinating. So that's you know, I've really enjoyed those
• 1:32:11
  Speaker 1: those programs and and look forward to the next installments
• 1:32:15
  Speaker 1: coming out.
• 1:32:16
  Speaker 2: Sounds like one we should put on our list. Let's
• 1:32:20
  Speaker 2: talk about your early mentors who helped shape your career.
• 1:32:24
  Speaker 1: Yeah, you know, I never really had official mentors. It
• 1:32:31
  Speaker 1: wasn't really the way the businesses that I operated in worked,
• 1:32:35
  Speaker 1: but I but there were people that I was able
• 1:32:39
  Speaker 1: to observe that had, you know, just had achieved such
• 1:32:45
  Speaker 1: incredible success and we're so good. And one that really
• 1:32:48
  Speaker 1: stands out, I think is David Tepper, who you know,
• 1:32:52
  Speaker 1: of all the individuals with whom I interacted over the years,
• 1:32:55
  Speaker 1: is absolutely the best investor of the bunch. And David's
• 1:33:01
  Speaker 1: two things stand out. One is incredible conviction and two
• 1:33:05
  Speaker 1: his ability to take a very complicated situation and to
• 1:33:08
  Speaker 1: still it down to very simple terms, which is a
• 1:33:10
  Speaker 1: mark of true genius. And I think his prosecution of
• 1:33:16
  Speaker 1: his commitment and his strategy, you know, starting in distress
• 1:33:20
  Speaker 1: corporate and then you know a lot of macro type
• 1:33:22
  Speaker 1: investing in addition to what he does at his core
• 1:33:25
  Speaker 1: is incredibly impressive. And so you know, I think looking
• 1:33:29
  Speaker 1: at the way that he approached, you know, being committed
• 1:33:34
  Speaker 1: to a position and unwavering in many cases despite others
• 1:33:39
  Speaker 1: maybe having a different view is something that I've always
• 1:33:42
  Speaker 1: really respected.
• 1:33:43
  Speaker 2: Tepa's fund is appalousa capital.
• 1:33:45
  Speaker 1: That's right.
• 1:33:46
  Speaker 2: Yes, he He's put up pretty pretty amazing them.
• 1:33:49
  Speaker 1: It's unbelievable vable.
• 1:33:51
  Speaker 2: So let's talk about everybody's favorite question books. What are
• 1:33:54
  Speaker 2: some of your favorites? What are you reading right now?
• 1:33:56
  Speaker 1: So I don't know how I get into this, but
• 1:33:58
  Speaker 1: right now I'm reading this book called One's Second After,
• 1:34:01
  Speaker 1: which is about life in the United States, you know,
• 1:34:04
  Speaker 1: immediately following an emp or electromagic pulse attack. Is is
• 1:34:11
  Speaker 1: a rather disturbing book, but it's really pretty fascinating. It
• 1:34:16
  Speaker 1: goes to, you know, some of the risks that we
• 1:34:19
  Speaker 1: face as a modern society and how quickly things can
• 1:34:23
  Speaker 1: change if the right set of kind of really negative
• 1:34:27
  Speaker 1: and horrible circumstances arise. And I've always been sort of
• 1:34:31
  Speaker 1: fascinated by the risks that we as a modern society
• 1:34:34
  Speaker 1: face that aren't often thought about, and the ways that
• 1:34:37
  Speaker 1: we can protect against them. That's a big one that
• 1:34:39
  Speaker 1: in our electrical grid, I think you know, particularly in
• 1:34:42
  Speaker 1: our urban areas, we are uniquely exposed to a loss
• 1:34:45
  Speaker 1: of power. And so, you know, I think the Copple
• 1:34:50
  Speaker 1: book Lights Out that was written a while ago as
• 1:34:52
  Speaker 1: another sort of must read. It's something that we really
• 1:34:56
  Speaker 1: should be paying much more attention to. You know, there's
• 1:34:59
  Speaker 1: a lot of great initiatives that as a country were
• 1:35:02
  Speaker 1: pursuing for noble reasons, but my personal view is that
• 1:35:07
  Speaker 1: the making our electric grid more robust should really be
• 1:35:11
  Speaker 1: at the top of our list.
• 1:35:12
  Speaker 2: There's some funds in the Infrastructure Bill that go to
• 1:35:16
  Speaker 2: hardening the electric grid. I don't know what your experience
• 1:35:21
  Speaker 2: was during Sandy in the New York area, we had
• 1:35:23
  Speaker 2: no electricity for thirteen days, and when we subsequently moved
• 1:35:28
  Speaker 2: to a new house that was this close to getting
• 1:35:32
  Speaker 2: that gas as soon as it became available, the first
• 1:35:35
  Speaker 2: thing I did was putting in a giant generator and say,
• 1:35:38
  Speaker 2: I don't care what happens. I am never going through
• 1:35:40
  Speaker 2: that nonsense, right, And it's really quite astonishing how frequently
• 1:35:46
  Speaker 2: modern society, like the US, there's some website that shows
• 1:35:50
  Speaker 2: you all of the outages for the electrical grid. It's
• 1:35:55
  Speaker 2: kind of creaking and outdated and very vulnerable, not just
• 1:35:59
  Speaker 2: the hacking, but silly things like trees falling. Yeah, takes
• 1:36:02
  Speaker 2: out a whole neighborhood for a week. It's kind of
• 1:36:05
  Speaker 2: a it's kind of shocking.
• 1:36:06
  Speaker 1: Yeah, it's there's no question that we need to be
• 1:36:11
  Speaker 1: modernizing our you know, our electric distribution system. And it's
• 1:36:15
  Speaker 1: not just at the industrial scale level but also right
• 1:36:18
  Speaker 1: down to the home, so you know, greater levels of
• 1:36:21
  Speaker 1: battery backup and solar power, but things that are protected
• 1:36:25
  Speaker 1: against you know, small scale emp A results which wol
• 1:36:29
  Speaker 1: like a lightning strike, and large scale if we ever
• 1:36:32
  Speaker 1: were attacked, you know, it's it's a real risk to society.
• 1:36:36
  Speaker 1: So I think, you know, those are those are things
• 1:36:39
  Speaker 1: that I've always been fascinated about, the big giant problems.
• 1:36:42
  Speaker 1: That's exactly the kind of thing you want to be
• 1:36:44
  Speaker 1: reading before bed at night, you know. But how do
• 1:36:46
  Speaker 1: we how do we think about those and how should
• 1:36:48
  Speaker 1: that be worked into our national priorities.
• 1:36:50
  Speaker 2: My sister lived in a town that was one of
• 1:36:53
  Speaker 2: the few rare towns that have underground electrical well originally
• 1:36:59
  Speaker 2: started as how do we avoid the visual blight of
• 1:37:02
  Speaker 2: copper wire strung between dead trees, and instead they put
• 1:37:05
  Speaker 2: it all on the ground and Sandy I have a
• 1:37:08
  Speaker 2: vivid recollection of her saying it was really inconvenient. The
• 1:37:11
  Speaker 2: cable went out for a couple of hours and that was.
• 1:37:14
  Speaker 1: Her entire experience.
• 1:37:16
  Speaker 2: Yeah, could be the greatest shower I ever took in
• 1:37:18
  Speaker 2: my life. Was the fifth day of Gee this, we're
• 1:37:21
  Speaker 2: not getting electricity back anytime soon. Yeah. So, and to
• 1:37:26
  Speaker 2: move everything on the ground with costs billions, but at
• 1:37:28
  Speaker 2: the very least to make things a little more resilient
• 1:37:31
  Speaker 2: and a little more hardened, Yeah, got to be a
• 1:37:33
  Speaker 2: top priority.
• 1:37:34
  Speaker 1: Yeah. Or micro generation, that's that's you know, smaller scale
• 1:37:39
  Speaker 1: you could work as well.
• 1:37:40
  Speaker 2: So if you have solar or winds and the ability
• 1:37:42
  Speaker 2: to store it for a couple of days, you're okay,
• 1:37:46
  Speaker 2: even better lose.
• 1:37:47
  Speaker 1: Ah, that's right. Yeah, yea. It depends on your location.
• 1:37:51
  Speaker 1: So but you know, it's a big giant investment that
• 1:37:54
  Speaker 1: we should really take seriously across our country, you know,
• 1:37:57
  Speaker 1: hardening the grid and distributing the power generator, you know,
• 1:38:00
  Speaker 1: more solar, more renewable, all of it.
• 1:38:03
  Speaker 2: To circle back to the Caymans or the way I
• 1:38:06
  Speaker 2: love the way the locals pronounce it k man Man
• 1:38:09
  Speaker 2: is they had this setup where between the local power company,
• 1:38:15
  Speaker 2: the local government and the UK government you could get
• 1:38:19
  Speaker 2: pretty much one hundred percent funding for solar. Or they
• 1:38:23
  Speaker 2: were really big on geothermal that you would drop sink
• 1:38:26
  Speaker 2: a geothermal line and you have heat and air conditioning
• 1:38:29
  Speaker 2: year round at essentially no cost.
• 1:38:32
  Speaker 1: That's right. I mean GEO is like, you know, I've
• 1:38:35
  Speaker 1: always done geo. Well, you know, solar is tough in
• 1:38:38
  Speaker 1: certain jurisdictions, but I think the combination, if you can
• 1:38:42
  Speaker 1: do combo of solar and geo, you're really in a
• 1:38:45
  Speaker 1: you know, you've got a lot of energy independence and
• 1:38:48
  Speaker 1: much cleaner. It's well worth the investment in most places.
• 1:38:51
  Speaker 1: And and you know, particularly in an island where you
• 1:38:55
  Speaker 1: can put GEO in, you know, you're really just getting
• 1:38:57
  Speaker 1: down below the coral. It's an incredibly efficient way of
• 1:39:03
  Speaker 1: managing your electric costs.
• 1:39:05
  Speaker 2: Yeah, drops everything in half. And because it's so expensive
• 1:39:08
  Speaker 2: to import.
• 1:39:08
  Speaker 1: Everything, oh massively.
• 1:39:10
  Speaker 2: But they seem to have plenty of sunshine now they
• 1:39:12
  Speaker 2: do think that's the big one. So let's jump to
• 1:39:14
  Speaker 2: our last two questions that we ask all of our guests,
• 1:39:17
  Speaker 2: Starting with what sort of advice would you give to
• 1:39:20
  Speaker 2: a recent college grad interested in a career in either
• 1:39:25
  Speaker 2: investing or distressed assets.
• 1:39:28
  Speaker 1: I think it's I think irrespective of what you're looking
• 1:39:31
  Speaker 1: to do, the advice is the same, which is that
• 1:39:34
  Speaker 1: make sure you find something that you love. And it
• 1:39:36
  Speaker 1: sounds so trite you hear it from everyone, but it
• 1:39:40
  Speaker 1: really is a critical piece of advice. Investing in distress
• 1:39:45
  Speaker 1: is not for everyone. You know, it's not an easy
• 1:39:48
  Speaker 1: way to make money. You know, they're definitely better ways
• 1:39:51
  Speaker 1: of doing it. I think, you know, if I could
• 1:39:53
  Speaker 1: tell my kids to go into a type of investing,
• 1:39:55
  Speaker 1: I'd probably tell them to do VC or something else.
• 1:39:58
  Speaker 1: But I do think that you have to ensure that
• 1:40:02
  Speaker 1: the career you're pursuing is something that you can be
• 1:40:05
  Speaker 1: committed to for a long time, so that you're in
• 1:40:07
  Speaker 1: it long enough to become an expert. I think that's
• 1:40:10
  Speaker 1: perhaps the crucial element if you want to achieve great success.
• 1:40:14
  Speaker 1: Make sure you stay committed to something long enough that
• 1:40:16
  Speaker 1: you can become an expert.
• 1:40:17
  Speaker 2: At really interesting and our final question, what do you
• 1:40:21
  Speaker 2: know about the world of investing today? You wish you
• 1:40:23
  Speaker 2: knew back in the early nineties when you were first
• 1:40:26
  Speaker 2: getting started everything.
• 1:40:28
  Speaker 1: I mean, I wish I knew you know gosh, I
• 1:40:31
  Speaker 1: wish I knew everything. I guess the one if I
• 1:40:33
  Speaker 1: could say, one big giant lesson that I've learned over
• 1:40:36
  Speaker 1: the years is, you know, watch out for secular change.
• 1:40:40
  Speaker 1: It's the killer. You can't be on the wrong side
• 1:40:43
  Speaker 1: of secular change. So, you know, being on the wrong
• 1:40:45
  Speaker 1: side of secular change the killer. You know, one example
• 1:40:48
  Speaker 1: would be the long term decline of commodity prices. Right
• 1:40:51
  Speaker 1: over a long period of time to generally speaking, commodity
• 1:40:55
  Speaker 1: prices are trending down, particularly after adjusting for inflation, and
• 1:40:59
  Speaker 1: so you know, it's one of many, you know, the
• 1:41:01
  Speaker 1: wrong set of technological change or adoption of new technologies.
• 1:41:05
  Speaker 1: You've got to be really careful about that, and you
• 1:41:08
  Speaker 1: have to have a thesis that looks out if you're
• 1:41:11
  Speaker 1: making a long term investment. So, you know, I think
• 1:41:14
  Speaker 1: that that that's probably the most important lesson that I
• 1:41:17
  Speaker 1: learned in my last you know, thirty years or so.
• 1:41:19
  Speaker 1: That wasn't entirely self evident when I started.
• 1:41:22
  Speaker 2: Huh, really, really very fascinating stuff. Tom, Thank you for
• 1:41:26
  Speaker 2: being so generous with your time. We have been speaking
• 1:41:29
  Speaker 2: with Tom Wagner, co portfolio manager and co founder of
• 1:41:33
  Speaker 2: Nighthead Capital If you enjoy this conversation, well, check out
• 1:41:38
  Speaker 2: any of the previous five hundred or so we've held
• 1:41:41
  Speaker 2: over the past eight years. You can find those at iTunes, Spotify, YouTube,
• 1:41:47
  Speaker 2: wherever you find your favorite podcasts. Sign up for my
• 1:41:51
  Speaker 2: daily reading list at ridults dot com. Follow me on
• 1:41:54
  Speaker 2: Twitter at ritults, follow all of the fine family of
• 1:41:58
  Speaker 2: Bloomberg podcasts at podcast I would be remiss if I
• 1:42:02
  Speaker 2: did not thank the crack team that helps put these
• 1:42:04
  Speaker 2: conversations together each week. Sarah Livesey is my audio engineer.
• 1:42:09
  Speaker 2: Attika Vaalbrun is my project manager. Jorn Russo is my researcher.
• 1:42:14
  Speaker 2: Pariswald is my producer. I'm Barry Rudolts. You've been listening
• 1:42:19
  Speaker 2: to Masters in Business on Bloomberg Radio.