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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moven news.

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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 1: Let's talk banking. We've got a c suite conversation here.

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Speaker 1: We're talking Texas, We're talking banking. We do that with

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Speaker 1: the Rob Holmes, CEO of Texas Capital Bank, joins us

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Speaker 1: Dan Hoverman Hoverman Hoverman, Thank you very much, sir, ahead

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Speaker 1: of corporate and investment banking Texas Capital Bank. Guys, talk

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Speaker 1: to us about what is Texas Capital Bank? Who your

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Speaker 1: customer's house business?

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Speaker 3: Well, that's a lot to unpass.

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Speaker 1: That's why we want to talk guy.

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Speaker 3: What is Texas Capital Bank.

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Speaker 4: It is the first full service financial services for arm

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Speaker 4: to headquartered in Texas.

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Speaker 5: Nice.

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Speaker 4: We did a wholesale transformation over the last two and

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Speaker 4: a half years. Most people overuse the word transformation. There

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Speaker 4: is nothing it hasn't been touched in this bank. We

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Speaker 4: redid the tech stack, the operating org structure about twenty

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Speaker 4: five to forty new products and services, depending on how

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Speaker 4: you define them. We did segmentation. We founded an investment bank,

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Speaker 4: both wholesale investment banking and also institutional sales and trading.

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Speaker 4: Both are profitable in the first year, which is pretty great.

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Speaker 4: We also have a top five mortgage warehouse business in

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Speaker 4: the country, which which allowed us to build frankly, the

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Speaker 4: sales and trading floor off the back of that with

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Speaker 4: mortgage trading TBA and gestation. So we're a wholesale bank

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Speaker 4: built for businesses but also private wealth to people that

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Speaker 4: run and own those businesses. We have national verticals, our

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Speaker 4: corporate bank, industry verticals so FIG, TMT, Energy, diversified.

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Speaker 6: Healthcare, and healthcare government nonprofit.

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Speaker 3: So those are those.

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Speaker 4: Are the Those are the industry verticals that are nationwide,

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Speaker 4: mortgage warehouses, nationwide, season trading obviously, investment banking obviously.

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Speaker 3: But the core focus and base and scales is Texas.

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Speaker 3: For sure.

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Speaker 4: We're the number one lender to Texas businesses of any

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Speaker 4: Texas based bank, which is a pretty big deal.

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Speaker 7: Nice that is a big deal.

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Speaker 2: It's a big state, man, it is a large state,

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Speaker 2: and they got a lot going on down there. So

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Speaker 2: how important I mean, the oil price must be extremely

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Speaker 2: important to you. And we're watching today West Text Intermedia

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Speaker 2: went up over ninety five.

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Speaker 7: Dollars a barrel. I guess that's good for the Texas economy.

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Speaker 4: Well, the great thing about Texa economy is how diversified

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Speaker 4: it is. So oil and gas about nine percent, and

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Speaker 4: everybody talks about oil and gas and fossil fuels and

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Speaker 4: they talk about Texas, but it's also the number one

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Speaker 4: and two when in Solar Provider we produce more alternative

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Speaker 4: energy than California. So it's oil is a big deal,

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Speaker 4: but it's it's not as big as it used to

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Speaker 4: be as house people think of Texas. So if you

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Speaker 4: look at our ETF, which Dan can talk about, our

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Speaker 4: ETF is comprised of contribution of the subsector to GDP

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Speaker 4: of the market cap, and the five largest holdings in

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Speaker 4: that is Tesla, McKesson, Waste Management, Schwab, and Excellent. Now

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Speaker 4: I can't think of a more diverse economy than that,

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Speaker 4: right exactly.

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Speaker 3: And economy. Look, the economy is ten percent of the

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Speaker 3: economy of the United States.

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Speaker 7: You can't say a TF without telling me the ticker.

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Speaker 3: T XS, t X Texas without the valves.

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Speaker 5: T X Texas without pretty cool, right, Hey Dan on

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Speaker 5: the corporate investment banking site, what are your clients saying

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Speaker 5: about their outlook here?

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Speaker 1: I mean, how's business for your clients?

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Speaker 6: It remains very robust if you look at the way

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Speaker 6: that folks are kind of participating in the economy, at

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Speaker 6: least from the Texas angle. If there's a recession in

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Speaker 6: the United States, there probably won't be a recession in Texas.

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Speaker 6: So if you look at the performance in the TXs

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Speaker 6: itself kind of outperforming the Russell MidCap or the SMP.

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Speaker 6: The more Texan you get, the more the stocks outperform.

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Speaker 6: So the you know, the outperformance on the index is

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Speaker 6: really driven by kind of how closely tied people are

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Speaker 6: to the Texas economy.

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Speaker 1: We got introduced him to Matt Winklin. That's a column

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Speaker 1: right there, Yes, exactly, Yes, we have our founder of

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Speaker 1: Bloomberg News. He loves going into state by state, looking

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Speaker 1: at the data and saying that, you know, for example,

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Speaker 1: California is people saying California is San Francisco in trouble.

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Speaker 1: It's not what the data shows. So he'd love to

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Speaker 1: see talking about that kind of data here. So I mean,

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Speaker 1: what's the future, what's the next three to five years

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Speaker 1: for your bank?

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Speaker 7: Here?

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Speaker 1: Is it continue to share in Texas? What's the kind

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Speaker 1: of your strategy?

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Speaker 4: Look, here's the great news. We started two and a

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Speaker 4: half years ago on a wholesale transformation. There was a

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Speaker 4: lot of risk and doing everything at once that is done.

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Speaker 4: There was risk and acceptance of the strategy by clients

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Speaker 4: and by employees and talent check check. The entire platform

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Speaker 4: was built about a month ago. Was the first time

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Speaker 4: we could say the platform was built, the capabilities were there,

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Speaker 4: and the talent was there top to bottom, both both

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Speaker 4: top down and bottom up. And so what's next for

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Speaker 4: us is just going to lighting clients, onboarding clients as

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Speaker 4: fast as we are today. We onboarded more clients the

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Speaker 4: first quarter than near the quarter the history of the bank.

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Speaker 4: In spite of the first quarter, Vince regional banks were

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Speaker 4: on board are thirty percent more clients the second quarter

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Speaker 4: than the first quarter.

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Speaker 3: We are a top.

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Speaker 4: Ten agent for leading bank syndications in the country for

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Speaker 4: the first six months. So it's it's just you know,

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Speaker 4: we've done everything. Most of the people on this platform

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Speaker 4: that our leaders have come from much more complex jobs

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Speaker 4: and much more larger companies, and we've all done it

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Speaker 4: a thousand times, we haven't done it with this jersey on.

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Speaker 4: So we got to do it with this jersey on

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Speaker 4: and just build what we have. And we're really, really,

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Speaker 4: really excited about doing that, and the client response has

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Speaker 4: been overwhelming.

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Speaker 1: Hey, Dan, you go into pitch business to on a

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Speaker 1: piece of corporate banking, investment banking business. How often are

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Speaker 1: you competing against some of our neighbors here in New

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Speaker 1: York City. Who's your competitor really day to day?

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Speaker 6: Yeah, there's really only two types of competitors when you

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Speaker 6: think about it. So we're either competing against other Texas banks,

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Speaker 6: and the sales point there is that we're full service

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Speaker 6: and nobody else that's headquartered in Texas is. And so

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Speaker 6: at some point, unless you bank with us, you're going

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Speaker 6: to outgrow your relationship. If you want to have a

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Speaker 6: relationship where you never need to go move your accounts,

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Speaker 6: you never need to make a new friendship with an RM. Frankly,

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Speaker 6: it's going to be tough to find folks that are

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Speaker 6: more maniacally focused on delivering great client experience, then you

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Speaker 6: should bank with us, or we're competing with one of

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Speaker 6: the banks that are in New York and at some

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Speaker 6: point our job really is just to make them fungible.

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Speaker 6: We work well with every New York bank. We know

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Speaker 6: a lot of us have a history of working.

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Speaker 2: You work with all the New York banks, even those

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Speaker 2: that have a say in social issues.

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Speaker 7: A client have any banned them from Texas.

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Speaker 6: It's it's you know, we're all about clients in here yesterday.

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Speaker 3: So yeah, he's with.

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Speaker 7: Us this week.

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Speaker 3: Okay, with us today? Oh excellent, Okay, have a dinner

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Speaker 3: with him and I.

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Speaker 4: So what I would say is it is it is

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Speaker 4: highly unusual for a person running a business or that

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Speaker 4: owns a business that wants to defer the decision making

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Speaker 4: about his or her business to San Francisco, New York

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Speaker 4: or Charlotte so they can get the same products and.

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Speaker 3: Services and be locally covered.

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Speaker 4: That's their preference, and we we have a we have

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Speaker 4: a high amount of confidence we can do that.

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Speaker 2: But what's what's recruiting talent? Like I mean, obviously it's

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Speaker 2: a very hot place to move right. Everybody wants to be.

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Speaker 2: We hear about Austin all the time. I love Dallas,

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Speaker 2: Paul San Antonio.

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Speaker 3: Recruiting talent, got some good schools. Texas Okay.

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Speaker 4: So Texas had is the only state in the country

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Speaker 4: with living Tier one universities. We had started a junior program,

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Speaker 4: first junior program ever at this bank, like everything else

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Speaker 4: first of this bank.

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Speaker 3: The first year we had sixty spots. We had eight

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Speaker 3: hundred applications.

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Speaker 4: Second year of sixty spots, two thousand applications, third year

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Speaker 4: sixty spots, about twenty eight hundred.

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Speaker 3: So junior great senior. Let's just put it this way.

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Speaker 4: I've had more than two or three CEOs in New

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Speaker 4: York called me and asked me how the hell I

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Speaker 4: hired that person? And so I would say we were

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Speaker 4: able to hire. It's not easy, but people want to

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Speaker 4: be a part of a build, they want to make

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Speaker 4: a difference, and they love living in Texas.

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Speaker 1: What's the biggest challenge you guys face right now?

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Speaker 4: The biggest challenge is, you know what, just what I've

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Speaker 4: said earlier, We've got to execute perfectly. Like when we

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Speaker 4: led the largest aged did debt deal in the country

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Speaker 4: two weeks ago for a Texas based on a gas company.

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Speaker 4: Now think about that, the largest SOL led deal in

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Speaker 4: the country.

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Speaker 3: Bank Capital did London. It was a capital markets deal. Okay,

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Speaker 3: we don't own any of it.

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Speaker 1: Okay.

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Speaker 3: It was globally.

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Speaker 4: Distributed with the best investors in the world and we

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Speaker 4: did it great.

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Speaker 3: But it is our first time.

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Speaker 4: I mean, if you go talk to the CEO and

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Speaker 4: the board, the client, they love it. And by the way,

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Speaker 4: a money center bank pitched it, pitched a different structure

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Speaker 4: and spit the bit so which is causes harm to

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Speaker 4: that client. So they gave him the wrong advice and

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Speaker 4: they failed. Two mouths later, we got it done.

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Speaker 1: All right, good stuff. I'm glad you guys spared the

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Speaker 1: time to come in and see us. Really appreciate that.

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Speaker 3: Thank you.

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Speaker 1: We always like talking to some of those folks out

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Speaker 1: there getting it done on the ground. Rob Holmes, CEO

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Speaker 1: of Texas Capital Bank, as well as Dave Hoverman, head

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Speaker 1: of Corporate and Investment Banking Texas Capital Bank, based in

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Speaker 1: the Big Deep.

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Speaker 8: You're listening to the Team ken'shur Live program Bloomberg Markets

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Speaker 8: weekdays at ten am Eastern on Bloomberg dot Com, the

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Speaker 8: iHeartRadio app, and the Bloomberg Business App, or listen on

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Speaker 8: demand wherever you get your podcast.

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Speaker 1: Let's switch over back to these markets. Here again, the

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Speaker 1: S and P up about four tenths of one percent

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Speaker 1: near an intrut day high, the NASH deck up about

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Speaker 1: three tenths of one percent. Liz Young joins us. She's

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Speaker 1: head of investment Strategies at SOFI. Hey, Liz, when you

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Speaker 1: talk to your clients, When I think of a SOFI client,

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Speaker 1: I think of more of a younger client and maybe

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Speaker 1: have a longer perspective in these markets. A is at

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Speaker 1: the case and B what are you telling them these days?

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Speaker 9: Yeah, thanks for having me so. Generally speaking, our investors,

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Speaker 9: or the investors on our platform do skew younger. About

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Speaker 9: sixty five percent of them are between the ages of

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Speaker 9: twenty and forty, so compared to the average investor or

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Speaker 9: the average II networth investor, they are younger. However, we

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Speaker 9: do have quite a few that are over the age

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Speaker 9: of forty as well, so it kind of runs the

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Speaker 9: age gamut. I would say, you know, most most of

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Speaker 9: our investors do have a longer time horizon. There can

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Speaker 9: be a challenge in convincing them of that, though, and

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Speaker 9: we've got a market and in an environment today that

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Speaker 9: really just forces all of us to focus on the

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Speaker 9: short term, and we hang on every data point, every

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Speaker 9: word from the FED, and it does make us more

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Speaker 9: short term in nature when we're thinking about our investing decisions.

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Speaker 9: And just the individual investor of today is a trader.

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Speaker 9: I mean, they really do enjoy trading individual stocks, and

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Speaker 9: I think that that's an important distinction to make. But

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Speaker 9: there are a lot of investors.

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Speaker 2: I mean, well, a retail investor trading stocks just a

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Speaker 2: recipe for losing money.

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Speaker 9: No, it's it's a recipe for learning. And you know,

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Speaker 9: it's not necessarily that you would lose money.

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Speaker 2: Today stocks as well, like it's in the tune of

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Speaker 2: losing two hundred grand in the first year.

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Speaker 10: What a great I.

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Speaker 9: Mean, I do think that it's a wonderful thing that

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Speaker 9: there are so many individual investors today interested in getting

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Speaker 9: engaged in their investment horizons and getting engaged in the process.

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Speaker 9: I think really the risk is more that if the

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Speaker 9: information that you're given is headline worthy, you're probably going

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Speaker 9: to end up concentrated in a certain handful of names,

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Speaker 9: or in the names that are just the big ones,

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Speaker 9: and that's not necessarily creating a diversified portfolio. And there's

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Speaker 9: also this fallacy of familiarity, so investing in companies that

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Speaker 9: you're only familiar with, rather than making sure that you're

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Speaker 9: diversifying out across sector, across asset class, across investment type,

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Speaker 9: even in vehicle. So I think it's perfectly fine to

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Speaker 9: invest in individual stocks here and there, but I wouldn't

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Speaker 9: make it necessarily the core of your portfolio, and you

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Speaker 9: want to make sure that you still own a decent

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Speaker 9: number of individual stocks.

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Speaker 1: List, how do your clients use ETFs? I mean, ETFs

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Speaker 1: has just been a phenomenal growth story within financial services

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Speaker 1: really over the last decade plus. You know, my day

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Speaker 1: was mutual funds. Now it's all ETFs. How are they

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Speaker 1: used by your customers.

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Speaker 9: They're very widely used by our customers, and they're very

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Speaker 9: widely used by individual investors everywhere, largely because, number one,

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Speaker 9: they give you an opportunity to hold a lot of

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Speaker 9: securities for a much lower cost than many of the

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Speaker 9: mutual funds of the past did. So there's better opportunity there,

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Speaker 9: and there's great diversification opportunity in them. I think ETFs

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Speaker 9: are now that they're such a big part of the market,

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Speaker 9: it is important to still do your research on them though,

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Speaker 9: and there are a number of different options in each space,

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Speaker 9: even as you get to more niche parts of the market. So,

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Speaker 9: for example, let's say you want to buy a dividend ETF,

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Speaker 9: you want to do the research and make sure that

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Speaker 9: you're buying a dividend ETF, that is, holding companies with

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Speaker 9: sustainable dividends or growing dividends rather than just currently high dividends. Right,

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Speaker 9: So there's still different things that you need to do

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Speaker 9: to make sure that you're not completely passively investing. But

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Speaker 9: I think ETFs are a great tool for investors of

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Speaker 9: all wealth categories to use for exposure to the market.

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Speaker 2: Do you see people piling into investors piling into, you know,

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Speaker 2: treasuries or places where you can get safe return for

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Speaker 2: the first time in a generation.

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Speaker 9: I don't know if piling in is the right way

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Speaker 9: to think about that, but I think that over the

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Speaker 9: last year or so, many people have moved into treasuries

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Speaker 9: more than they ever expected to, and it has been

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Speaker 9: a tough It's been a tough trade lately as we've

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Speaker 9: seen a sell off in treasuries, particularly on the longer

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Speaker 9: end of the curve. But this is also an environment

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Speaker 9: where many investors have not seen yields like this on

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Speaker 9: treasuries ever in their investing lifespan, So it's offering you

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Speaker 9: to get paid to wait, and I don't think that

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Speaker 9: that's a bad idea. I do think that there are

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Speaker 9: plenty of people who have also used money market funds

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Speaker 9: to do that. But there's still a decent amount of

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Speaker 9: appetite for equities. I mean, the S and P is

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Speaker 9: only down about seven percent since at local high in July,

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Speaker 9: and that's not even in correction territory yet, so there's

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Speaker 9: obviously still plenty of money in the equity market.

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Speaker 1: What's your market call here, Liz, What are you telling

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Speaker 1: your customers.

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Speaker 9: I've been pretty cautious all year, obviously wrongfully so in

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Speaker 9: the beginning of the year. I continue to be cautious.

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Speaker 9: And right now, what we're seeing in the market, which

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Speaker 9: I wrote about in my blog today, is some quiet weakness.

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Speaker 9: There's been a pullback, but quietly weakening from a momentum perspective.

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Speaker 9: So if you look at things like the fifty day

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Speaker 9: moving average of the S and P recently rolling over

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Speaker 9: and moving downward, you look at the number of SMP

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Speaker 9: members trading above their two hundred day moving average, that

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Speaker 9: percentage is now down to forty percent, and that's dropped

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Speaker 9: pretty sharply in the last couple months now, not near

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Speaker 9: crisis levels, not near really deep levels of a pullback.

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Speaker 9: Usually you get that number somewhere in the eleven percent

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Speaker 9: range when things are really bad, but dropped. And then

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Speaker 9: you look at things like the relative strength indexes, which

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Speaker 9: usually indicate whether things are oversold yet, and that tells investors, Okay,

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Speaker 9: we've had a pullback, was it enough? Is it time

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Speaker 9: for a bounce? And the Relative Strength Index the RSI

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Speaker 9: reading on stocks shows that things have gotten a bit

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Speaker 9: worse but are not washed out yet. So I do

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Speaker 9: think that there's probably more risk to the downside here,

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Speaker 9: especially as yields keep rising.

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Speaker 2: Are you concerned about the government shut down as an investor?

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Speaker 2: I mean, we're all worried that the pandaicam could be

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Speaker 2: turned off, But does it matter to the markets.

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Speaker 9: The markets don't seem overly concerned with it, yet I

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Speaker 9: do think it matters to the markets.

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Speaker 3: This is a.

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Speaker 9: Story, though, that keeps repeating itself through market cycles. It

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Speaker 9: seems like we're talking about a government shutdown every six

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Speaker 9: months to a year, and it's no longer a newer,

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Speaker 9: surprising headline or worry for us to climb as market participants.

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Speaker 9: And what I think we've been conditioned to believe is that, yeah,

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Speaker 9: things might get a little dicey into the eleventh hour,

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Speaker 9: but eventually they figure it out. So I think the

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Speaker 9: bigger risk here is that there is a shutdown that

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Speaker 9: lasts a longer period of time, and it occurs during

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Speaker 9: a time when we're hanging on all of that data,

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Speaker 9: and what if some of the data is not available

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Speaker 9: as we expect it, even just for a few days.

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Speaker 9: So I do think there's a risk in the market

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Speaker 9: because of that. I think, you know, we're not in

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Speaker 9: a place where we want more uncertainty, that's for sure.

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Speaker 9: So I don't think it's necessarily a good thing to

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Speaker 9: have on the horizon. But so far markets don't seem

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Speaker 9: that spooked by it you have.

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Speaker 2: I mean, you did mention in your blog, which I'm

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Speaker 2: pretty sure on the money.

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Speaker 7: Right if I look at sofi dot com, so.

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Speaker 2: You point out that the VICS has been marching steadily higher.

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Speaker 2: It's not alarming yet, right, but it is starting to

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Speaker 2: creep up and look more and more interesting it Right now,

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Speaker 2: it's trading at seventeen to nine, right.

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Speaker 9: Well, it's funny. I mean, as investors lately, we've been

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Speaker 9: conditioned to expect AVIC somewhere between thirteen and fourteen, which

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Speaker 9: as we know, is historically low. So having it at

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Speaker 9: seventeen eighteen, it's been above eighteen for a few days.

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Speaker 9: Having it in those that level seems high compared to

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Speaker 9: what we've been experiencing on average. It's not really that high,

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Speaker 9: and the mental threshold is usually twenty, So as long

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Speaker 9: as it's below twenty, things are still typically considered subdued

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Speaker 9: or you know, not necessarily unsafe or terribly volatile. But

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Speaker 9: it's worth noting that it has marched up four points

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Speaker 9: or so in a pretty short period of time. And

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Speaker 9: that goes along with some of the other things that

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Speaker 9: I mentioned earlier in the interview, with you know, number

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Speaker 9: of stocks above the two hundred day falling, the RSI,

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Speaker 9: number of stocks that are showing over sold rising. So

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Speaker 9: there's there's clearly some breakdown and some weakening happening under

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Speaker 9: the surface in the market. Again, none of this is

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Speaker 9: at alarming levels, but it's happening enough that it's starting

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Speaker 9: to feel like paper cuts and it's a nagging pain

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Speaker 9: that I don't think we should gloss over.

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Speaker 1: All right, Liz, thanks so much for joining us. As always,

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Speaker 1: Liz Young, head of Investment Strategies at SOFAR, giving us

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Speaker 1: her market call.

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Speaker 8: Here, you're listening to the tape catch are live program

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00:19:24,080 --> 00:19:28,040
Speaker 8: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,

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00:19:28,200 --> 00:19:30,919
Speaker 8: the tune in app, Bloomberg dot Com, and the Bloomberg

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00:19:30,960 --> 00:19:34,040
Speaker 8: Business app. You can also listen live on Amazon Alexa

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00:19:34,080 --> 00:19:37,400
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Speaker 8: Bloomberg eleven thirty.

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Speaker 1: Let's continue our discussion on the ecosystem ESG the green outlook.

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Speaker 1: If you will, we can do that with doctor Lise

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Speaker 1: Castillo Nilis. She is with the firm Ramball and she

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Speaker 1: joins us via zoom. Hey, Lise, can you just tell

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Speaker 1: us let's start off real quick. What does Ramball do?

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Speaker 1: What are you guys doing over there?

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Speaker 11: Yeah, thanks for inviting me. Ramble is a consulting company

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Speaker 11: and engineering company as well, and we do a lot

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Speaker 11: of environmental health sciences and other types of sciences.

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Speaker 7: So what does that I mean?

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Speaker 2: Do you like measure the hole in the ozone or

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Speaker 2: what kind of sciences are we talking about.

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Speaker 11: So we do a lot of different things, but I

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Speaker 11: personally work heavily on biodiversity and ecosystem services. So we

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Speaker 11: help our clients meet their sustainability goals in a variety

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Speaker 11: of different ways and help them increase biodiversity on their sites,

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Speaker 11: and you know, form the goals that will help them

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Speaker 11: reach these reach the points they want to get to.

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Speaker 1: And so what is the kind of the business case

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Speaker 1: for this? When you go talk to your clients, how

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Speaker 1: do you frame it? How do they think about it?

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Speaker 11: Well, the business case is that, unfortunately, nature isn't an

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Speaker 11: unlimited resource, even though our financial markets have treated it

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Speaker 11: that way in the past. For example, of polony disappear,

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Speaker 11: most humans are going to starve because seventy five percent

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Speaker 11: of our crops rely on pollinators. So I mean the

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Speaker 11: business cases that are businesses in our societies depend upon

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Speaker 11: natural resources and when those resources disappear, businesses are affected.

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Speaker 11: So this is we can already see this happening with

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Speaker 11: the increase in extreme weather events and the resulting increase

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Speaker 11: in insurance premium.

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Speaker 2: So who but who are your I mean, I think

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Speaker 2: we all agree with you there, yep. I think about

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Speaker 2: the bees a lot for example, But what can we

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Speaker 2: do about it? I mean, who are for example, your clients.

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Speaker 2: Are they small and medium sized businesses? Bigger businesses? Do

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Speaker 2: they have a lot of land?

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Speaker 10: Is it? You know?

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Speaker 7: Can they plant things? Can they? I don't know, hunt,

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Speaker 7: what's what's the idea?

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Speaker 11: Well, the idea is that, I mean, all businesses can

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Speaker 11: contribute whatever their size. My clients are small businesses to

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Speaker 11: very large businesses. The larger ones do tend to own

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Speaker 11: a lot of land, and some of that land has

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Speaker 11: been contaminated in the past, often from historical you know,

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Speaker 11: historical events before people knew that they were doing this

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Speaker 11: contamination before there were logs to control it, and they're

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Speaker 11: trying to clean that up and they're trying to improve

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Speaker 11: biodversity on those sites. In other cases, there are clients

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Speaker 11: that just want to contribute more and want to build

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Speaker 11: their image and you know, their social license and so

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Speaker 11: then they want to increase nature on their properties as well.

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Speaker 11: But you don't have to have large properties to do that, right,

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Speaker 11: You can do that in your small building too.

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Speaker 1: How do you, I mean, do you make a distinction

440
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Speaker 1: between nature and climate change and climate action?

441
00:22:42,240 --> 00:22:47,760
Speaker 11: Nature and climate are really intertwined Basically, there's pretty good

442
00:22:47,800 --> 00:22:50,119
Speaker 11: agreement that we're not going to reach our climate goals

443
00:22:50,400 --> 00:22:53,879
Speaker 11: unless we're also striving for nature goals. So plants and

444
00:22:54,000 --> 00:22:58,000
Speaker 11: alga they pull, they pull greenhouse gases out of the air.

445
00:22:58,720 --> 00:23:01,479
Speaker 11: And if we're just trying to douse greenhouse gases without

446
00:23:01,640 --> 00:23:04,879
Speaker 11: you know, increasing the area of habitat for these species,

447
00:23:04,920 --> 00:23:06,840
Speaker 11: then we're not going to really have great success.

448
00:23:07,720 --> 00:23:10,600
Speaker 1: So what are the types of companies that you think

449
00:23:10,600 --> 00:23:13,159
Speaker 1: are doing a good job, not by industry, but just

450
00:23:13,200 --> 00:23:16,040
Speaker 1: kind of what kind of success stories do you find

451
00:23:16,040 --> 00:23:17,600
Speaker 1: and maybe what are some of the frustrations that you

452
00:23:17,640 --> 00:23:19,560
Speaker 1: have when you go out and talk to different types

453
00:23:19,560 --> 00:23:20,080
Speaker 1: of companies.

454
00:23:22,920 --> 00:23:25,280
Speaker 11: I mean the successes that I find a typically it's

455
00:23:25,320 --> 00:23:28,879
Speaker 11: individuals within companies that are just really motivated and are

456
00:23:28,920 --> 00:23:31,560
Speaker 11: really being a force for change within their company to

457
00:23:31,640 --> 00:23:34,119
Speaker 11: make like the small decisions that add up over time,

458
00:23:34,520 --> 00:23:37,800
Speaker 11: and you know, as they're having successful projects, then others

459
00:23:37,800 --> 00:23:40,679
Speaker 11: in their company are seeing that and getting on the bandwagon. So,

460
00:23:40,760 --> 00:23:44,439
Speaker 11: for example, companies that are using nature based solutions instead

461
00:23:44,480 --> 00:23:48,439
Speaker 11: of standard environmental solutions, and that often comes down to

462
00:23:48,480 --> 00:23:51,440
Speaker 11: individual project managers making those decisions.

463
00:23:52,400 --> 00:23:58,480
Speaker 2: How much of a concern is greenwashing you know, I

464
00:23:58,480 --> 00:24:01,760
Speaker 2: I think, you know, we have the same concerns, and

465
00:24:01,840 --> 00:24:04,879
Speaker 2: so I will, you know, do what I can to recycle,

466
00:24:04,920 --> 00:24:07,119
Speaker 2: for example, or to buy recycled materials.

467
00:24:07,280 --> 00:24:09,720
Speaker 7: But I don't ever know, uh, you.

468
00:24:09,680 --> 00:24:12,240
Speaker 2: Know, what's happening once I put my cans in the

469
00:24:12,280 --> 00:24:15,639
Speaker 2: aluminum bin and my paper in the in that box.

470
00:24:15,680 --> 00:24:18,800
Speaker 2: You know, it's kind of hard to see what happens

471
00:24:18,800 --> 00:24:20,160
Speaker 2: when it moves down the line.

472
00:24:22,280 --> 00:24:25,880
Speaker 11: Yeah, I mean there's some concern for greenwashing. There are

473
00:24:26,680 --> 00:24:31,120
Speaker 11: frameworks out now, like the TNFD which just opened let's

474
00:24:31,160 --> 00:24:33,920
Speaker 11: just just launch last week. That's a task force Nature

475
00:24:33,960 --> 00:24:37,600
Speaker 11: Related Financial Disclosures. These kind of frameworks can help companies

476
00:24:38,000 --> 00:24:42,280
Speaker 11: really systematically look at what their dependencies and their impacts

477
00:24:42,280 --> 00:24:45,439
Speaker 11: are to nature and to report those in really clear ways.

478
00:24:45,760 --> 00:24:48,000
Speaker 11: And so the you know, the uptake of this kind

479
00:24:48,160 --> 00:24:51,320
Speaker 11: of disclosure method, it's going to help a lot with greenwashing.

480
00:24:52,440 --> 00:24:55,000
Speaker 1: That's kind of where I wanted to go here here Bloomberg.

481
00:24:55,000 --> 00:24:58,440
Speaker 1: At least we're big on data, and I know there's

482
00:24:58,440 --> 00:25:01,480
Speaker 1: been when I talk to investors that and maybe invest

483
00:25:01,680 --> 00:25:05,280
Speaker 1: in an ethical way focusing on ESG just broadly defined.

484
00:25:06,000 --> 00:25:07,920
Speaker 1: One of their concerns is they just don't have as

485
00:25:08,000 --> 00:25:10,480
Speaker 1: much data as they would like. The disclosure is not

486
00:25:10,760 --> 00:25:14,840
Speaker 1: consistent across companies and industries. It differs even from the

487
00:25:14,960 --> 00:25:18,760
Speaker 1: US versus non US. Where are we just in terms

488
00:25:18,800 --> 00:25:20,639
Speaker 1: of kind of getting companies to think about, you know,

489
00:25:21,160 --> 00:25:21,960
Speaker 1: good disclosure.

490
00:25:24,280 --> 00:25:27,800
Speaker 11: Well, some disclosure is required now, especially in Europe there

491
00:25:27,840 --> 00:25:31,679
Speaker 11: are the Corporate Sustainability Reporting Directive is going to be

492
00:25:31,720 --> 00:25:36,480
Speaker 11: requiring disclosures. And that's not just for European companies, that's

493
00:25:36,520 --> 00:25:40,919
Speaker 11: also for any well large companies typically that have a

494
00:25:40,960 --> 00:25:44,640
Speaker 11: presence in Europe, so that is going to be required soon.

495
00:25:45,000 --> 00:25:48,800
Speaker 11: There are also these voluntary disclosing measures like TNFD or

496
00:25:48,840 --> 00:25:51,800
Speaker 11: science based Targets for nature that companies are taking up.

497
00:25:52,040 --> 00:25:53,840
Speaker 11: I mean, I think basically this is just getting to

498
00:25:53,920 --> 00:25:56,600
Speaker 11: that investors want to know what the risks are that

499
00:25:56,640 --> 00:26:01,520
Speaker 11: their investments are actually you know, taking into consideration what

500
00:26:01,560 --> 00:26:04,600
Speaker 11: their dependencies are in nature, and they're preparing for that

501
00:26:04,760 --> 00:26:08,199
Speaker 11: so that investors are not making a bad investment, but

502
00:26:08,200 --> 00:26:09,359
Speaker 11: they're taking a big risk.

503
00:26:10,040 --> 00:26:14,840
Speaker 2: You mentioned that we won't meet our I guess temperature

504
00:26:14,880 --> 00:26:18,040
Speaker 2: goals if we don't have the kind of biodiversity that's

505
00:26:18,080 --> 00:26:22,480
Speaker 2: necessary in our ecosystems. Are you confident that we're making

506
00:26:22,560 --> 00:26:23,720
Speaker 2: real progress here.

507
00:26:25,640 --> 00:26:28,399
Speaker 11: I mean I think we are making real progress. I

508
00:26:28,400 --> 00:26:30,760
Speaker 11: don't think we're making enough progress unfortunately.

509
00:26:31,600 --> 00:26:34,040
Speaker 1: All right, list thanks so much for joining us. This

510
00:26:34,119 --> 00:26:36,240
Speaker 1: is a big, big issue for a lot of companies

511
00:26:36,240 --> 00:26:38,000
Speaker 1: and a lot of investors and for the markets in general.

512
00:26:38,040 --> 00:26:38,560
Speaker 7: Doctor LESE.

513
00:26:38,800 --> 00:26:43,840
Speaker 1: Castillo Neilis. She's a biodiversity and ecosystems senior manager at

514
00:26:43,960 --> 00:26:47,399
Speaker 1: Ramboll trying to work with companies to I guess a

515
00:26:47,400 --> 00:26:49,320
Speaker 1: lot of things, but just kind of interact better with nature,

516
00:26:49,359 --> 00:26:50,640
Speaker 1: reduced the carbon footprint.

517
00:26:51,840 --> 00:26:55,240
Speaker 8: You're listening to the team Ken's are Live program Bloomberg

518
00:26:55,280 --> 00:26:58,639
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg dot Com,

519
00:26:58,720 --> 00:27:01,920
Speaker 8: the iHeartRadio app and the Bloomberg Business at or listening

520
00:27:01,960 --> 00:27:04,040
Speaker 8: on demand wherever you get your podcasts.

521
00:27:05,800 --> 00:27:08,840
Speaker 1: Let's check in with a player out there in the business.

522
00:27:08,920 --> 00:27:12,199
Speaker 1: David Rainey. He's a portfolio manager at Hennessy Focus Funds.

523
00:27:12,400 --> 00:27:14,119
Speaker 1: He's been in the business a while, but of course

524
00:27:14,520 --> 00:27:18,640
Speaker 1: the absolute highlight of his resume is his MBA from

525
00:27:18,680 --> 00:27:21,639
Speaker 1: the Fucal School of Business at Duke University, part of

526
00:27:21,680 --> 00:27:25,480
Speaker 1: the great Class of nineteen ninety one. David Rainey, how

527
00:27:25,520 --> 00:27:27,359
Speaker 1: are you doing, my friend?

528
00:27:28,760 --> 00:27:30,160
Speaker 10: Good to talk to you, Paul David.

529
00:27:30,240 --> 00:27:32,360
Speaker 1: Let's step back here a little bit here, what's your

530
00:27:32,400 --> 00:27:36,160
Speaker 1: market call here? There's a lot of crosswinds for investors

531
00:27:36,160 --> 00:27:38,520
Speaker 1: to deal with, a lot of headwinds. Quite quite frankly,

532
00:27:38,640 --> 00:27:41,000
Speaker 1: how are you guys just kind of viewing this market here?

533
00:27:43,400 --> 00:27:49,840
Speaker 10: Well, you know, we're long term oriented investors and we've

534
00:27:49,840 --> 00:27:53,479
Speaker 10: always taken a business owner's perspective and invest in in

535
00:27:53,520 --> 00:27:57,200
Speaker 10: public equities. And you know, we approach every investment, whether

536
00:27:57,240 --> 00:27:59,359
Speaker 10: it's in the founder on our watch list, as if

537
00:27:59,400 --> 00:28:02,920
Speaker 10: we're going to own indefinitely. I mean, clearly, what has

538
00:28:02,960 --> 00:28:06,240
Speaker 10: the market all shook up today and over the past

539
00:28:06,359 --> 00:28:09,920
Speaker 10: year or two is inflation, the rise and rates and

540
00:28:10,000 --> 00:28:13,600
Speaker 10: what's that doing to low and moderate income Americans? And

541
00:28:13,760 --> 00:28:16,400
Speaker 10: is doing a lot, and so we're sensitive to that.

542
00:28:16,840 --> 00:28:20,280
Speaker 10: We don't think we have a lot of exposure to

543
00:28:20,680 --> 00:28:25,440
Speaker 10: businesses and products and services companies that have a ton

544
00:28:25,480 --> 00:28:29,800
Speaker 10: of low and moderate income exposure, but we're aware of it.

545
00:28:29,960 --> 00:28:33,639
Speaker 10: And you know, traditionally that's the class of Americans that

546
00:28:33,720 --> 00:28:36,840
Speaker 10: tend to take it on the chin more so than others.

547
00:28:37,880 --> 00:28:42,040
Speaker 10: And so you know, but if I step back and

548
00:28:42,200 --> 00:28:44,640
Speaker 10: I have excuse me, a little bit of gray hair.

549
00:28:45,640 --> 00:28:51,520
Speaker 10: I look back at it said funds rate fifteen twenty

550
00:28:51,720 --> 00:28:55,400
Speaker 10: twenty five, thirty years ago two three four percent, and

551
00:28:55,480 --> 00:28:58,040
Speaker 10: I look at a tenure treasury and it would have

552
00:28:58,080 --> 00:29:00,520
Speaker 10: had a four or five or six handle as well.

553
00:29:00,600 --> 00:29:03,520
Speaker 10: And so what's going on with the eel curve. The

554
00:29:03,600 --> 00:29:06,320
Speaker 10: level and the shape of the curve isn't surprising. As

555
00:29:06,400 --> 00:29:09,120
Speaker 10: we normalize, I guess we're kind of back to the

556
00:29:09,160 --> 00:29:11,680
Speaker 10: new normal and that's what the market's waking up to.

557
00:29:13,600 --> 00:29:15,640
Speaker 1: So when you think about long term investing, I would

558
00:29:15,680 --> 00:29:19,880
Speaker 1: think that management quality really getting a good handle on

559
00:29:20,000 --> 00:29:24,200
Speaker 1: management their ability to redeploy capital, grow the business generator returns.

560
00:29:24,240 --> 00:29:26,800
Speaker 1: That would be top top of the list of the

561
00:29:26,800 --> 00:29:29,400
Speaker 1: things you look at. How do you assess management quality?

562
00:29:31,120 --> 00:29:35,840
Speaker 10: Yeah, but we actually take a criteria driven approach. We

563
00:29:35,920 --> 00:29:39,360
Speaker 10: have key five key criteria and you hit it on

564
00:29:39,440 --> 00:29:42,280
Speaker 10: the head. Management is one of those five. We look

565
00:29:42,320 --> 00:29:45,960
Speaker 10: at the business model, its ability to generate attractive returns

566
00:29:45,960 --> 00:29:49,360
Speaker 10: on the invested capital. We look at management and you

567
00:29:49,760 --> 00:29:53,920
Speaker 10: can't screen for management quality. This isn't something that pops

568
00:29:54,000 --> 00:29:56,400
Speaker 10: up on a screen and tells you to take a

569
00:29:56,440 --> 00:29:59,320
Speaker 10: better look that. We look for managers that are good

570
00:29:59,320 --> 00:30:03,560
Speaker 10: at running the business day to day and investing the

571
00:30:03,640 --> 00:30:07,600
Speaker 10: businesses free cash flow back into it to grow the

572
00:30:07,680 --> 00:30:12,000
Speaker 10: firm's economic value. We also look at the reinvestment opportunities

573
00:30:12,000 --> 00:30:15,200
Speaker 10: that are out there. We look at valuation, and then

574
00:30:15,240 --> 00:30:20,080
Speaker 10: finally tail risk. Wh's the likelihood that this compounder gets

575
00:30:20,600 --> 00:30:25,080
Speaker 10: upset because of the balance sheet issue, fat or fashion,

576
00:30:25,200 --> 00:30:27,800
Speaker 10: this type of thing. But you're absolutely right. If you're

577
00:30:27,800 --> 00:30:30,080
Speaker 10: going to own a stock for more than a quarter

578
00:30:30,240 --> 00:30:34,480
Speaker 10: or two, management is one of the key considerations to

579
00:30:34,560 --> 00:30:37,200
Speaker 10: make before you put money at risk.

580
00:30:38,160 --> 00:30:40,200
Speaker 1: I look at some of the names that you guys own,

581
00:30:40,240 --> 00:30:42,480
Speaker 1: and a couple jump out of me, most notably because

582
00:30:42,480 --> 00:30:46,080
Speaker 1: they're both in the from Richmond, Virginia, place very near

583
00:30:46,120 --> 00:30:48,520
Speaker 1: and dear to my heart. Here, let's start with Carmacks,

584
00:30:48,520 --> 00:30:50,880
Speaker 1: because that's in the news here today. Talk to us

585
00:30:50,880 --> 00:30:53,520
Speaker 1: about what you heard from Carmacks and how that may

586
00:30:53,560 --> 00:30:55,080
Speaker 1: impact your thesis of this name.

587
00:30:57,000 --> 00:31:01,239
Speaker 10: Well, I mean again, you kind of step back and

588
00:31:01,280 --> 00:31:04,040
Speaker 10: you look at what happened with COVID. I mean, there

589
00:31:04,080 --> 00:31:08,000
Speaker 10: was a time when CarMax was trading I think back

590
00:31:08,040 --> 00:31:11,760
Speaker 10: in February or March of twenty twenty at very distress levels,

591
00:31:12,240 --> 00:31:15,120
Speaker 10: almost as if there was an existential threat in the

592
00:31:15,200 --> 00:31:20,760
Speaker 10: business was going to evaporate. Fast forward to today, they've

593
00:31:20,800 --> 00:31:26,520
Speaker 10: made enormous progress with their omni channel initiative. They're the

594
00:31:26,560 --> 00:31:31,560
Speaker 10: country's largest used car dealer or retailer retailer and its

595
00:31:31,760 --> 00:31:37,400
Speaker 10: differentiated business model is based on providing better customer a

596
00:31:37,400 --> 00:31:41,600
Speaker 10: better customer experience by having a large selection of high

597
00:31:41,720 --> 00:31:48,480
Speaker 10: quality row mileage cars across a nationwide network and no

598
00:31:48,600 --> 00:31:51,640
Speaker 10: haggle prizes. And what we've seen during our holding period

599
00:31:51,640 --> 00:31:54,280
Speaker 10: in Carmacks we voted for over a decade, is that

600
00:31:54,400 --> 00:31:58,360
Speaker 10: they've steadily taken market share because of their better customer experience.

601
00:31:58,920 --> 00:32:01,840
Speaker 10: And so we think that they're doing all the things

602
00:32:01,880 --> 00:32:05,719
Speaker 10: today as the market as they're kind of bumping along

603
00:32:05,800 --> 00:32:12,040
Speaker 10: at the bottom, so to speak, at growing a better

604
00:32:12,440 --> 00:32:16,280
Speaker 10: customer experience, particularly through omnichannel, which is the ability to

605
00:32:16,320 --> 00:32:20,400
Speaker 10: seamlessly connect what happens at a store with what a

606
00:32:20,440 --> 00:32:24,520
Speaker 10: customer wants to do online and bringing that all together.

607
00:32:25,040 --> 00:32:27,480
Speaker 10: And so, you know, CarMax is a name that we

608
00:32:27,560 --> 00:32:32,760
Speaker 10: think we'll recover nicely as used car sales pick up.

609
00:32:32,840 --> 00:32:37,240
Speaker 10: Typically in the US in any given year, about forty

610
00:32:37,280 --> 00:32:41,120
Speaker 10: million used cars are sold. We're probably bumping around at

611
00:32:41,120 --> 00:32:44,280
Speaker 10: about thirty five million this year because of the pull

612
00:32:44,360 --> 00:32:50,760
Speaker 10: forward over COVID, and we think that as CarMax works

613
00:32:50,800 --> 00:32:55,320
Speaker 10: its way out of this macro environment, that there's two

614
00:32:55,360 --> 00:32:59,120
Speaker 10: to four dollars of hidden earnings power in the stock.

615
00:32:59,280 --> 00:33:02,960
Speaker 10: So I think consensus about three dollars three dollars and

616
00:33:03,000 --> 00:33:06,600
Speaker 10: twenty cents this year. There's another two to four dollars

617
00:33:06,640 --> 00:33:10,360
Speaker 10: as the market recovers and they see very good incrementals

618
00:33:10,520 --> 00:33:11,800
Speaker 10: on the growing sales.

619
00:33:12,400 --> 00:33:15,880
Speaker 1: Thirty seconds Dave Real Quick, Markell Corporation, another Richmond company.

620
00:33:17,040 --> 00:33:22,160
Speaker 10: Yeah, rich and Days. Property Casualty specially property casualty insurance

621
00:33:22,200 --> 00:33:28,680
Speaker 10: company with important holdings and public equities and control positions

622
00:33:28,800 --> 00:33:32,640
Speaker 10: in private businesses. Many people talk about it in terms

623
00:33:32,680 --> 00:33:36,800
Speaker 10: of Berkshire halfway describe it as a baby Berkshire. We're

624
00:33:36,920 --> 00:33:42,520
Speaker 10: very excited about Markel's opportunity going forward. Well, property casualty

625
00:33:42,600 --> 00:33:47,280
Speaker 10: insurance is a h single digit return on equity business,

626
00:33:47,320 --> 00:33:50,960
Speaker 10: but they have consistently generated low double digit to mid

627
00:33:50,960 --> 00:33:54,600
Speaker 10: teams because of their equity positions in both the public

628
00:33:54,640 --> 00:33:59,280
Speaker 10: markets and now a growing private portfolio. So we're very

629
00:33:59,360 --> 00:33:59,840
Speaker 10: very excited.

630
00:34:00,200 --> 00:34:02,160
Speaker 1: It's kind of got a Berkshire kind of stock. Price

631
00:34:02,200 --> 00:34:04,720
Speaker 1: fifteen hundred bucks a share. Very interesting. David Rainey, thanks

632
00:34:04,720 --> 00:34:06,840
Speaker 1: so much for joining us. Dave Rainy, he's a portfolio

633
00:34:06,920 --> 00:34:10,480
Speaker 1: manager at Hennessy Focus Fun. I'll see you hopefully down

634
00:34:10,480 --> 00:34:10,839
Speaker 1: at Duke.

635
00:34:11,040 --> 00:34:14,160
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can

636
00:34:14,160 --> 00:34:17,960
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever

637
00:34:18,040 --> 00:34:19,520
Speaker 2: podcast platform you prefer.

638
00:34:19,920 --> 00:34:20,720
Speaker 7: I'm Matt Miller.

639
00:34:21,000 --> 00:34:24,440
Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three.

640
00:34:24,320 --> 00:34:26,720
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.

641
00:34:26,840 --> 00:34:29,520
Speaker 1: Before the podcast, you can always catch us worldwide at

642
00:34:29,520 --> 00:34:31,320
Speaker 1: Bloomberg Radio