WEBVTT - Massif Capital’s Thomson on Real-Asset Equities 0:00:16.160 --> 0:00:19.159 Welcome to Inside Active, a podcast about active managers that 0:00:19.200 --> 0:00:21.680 goes beyond sound bites and headlines and looks deeper into 0:00:21.720 --> 0:00:26.479 their processes, challenges and philosophies and security selection. I'm David Cohne, 0:00:26.520 --> 0:00:29.200 I lead Mutual fund and Active Research at Bloomberg Intelligence. 0:00:29.560 --> 0:00:33.440 Today my co host is Vincent Piazza, Senior Energy analyst 0:00:33.520 --> 0:00:36.680 at Bloomberg Intelligent. Vince, thank you for joining me today. 0:00:37.240 --> 0:00:38.519 Thank you thanks for having me. 0:00:39.400 --> 0:00:42.640 So you cover both the commodities W two I in 0:00:42.840 --> 0:00:46.279 natural gas as well as opstream E and PS. How 0:00:46.280 --> 0:00:49.040 are you reading sentiment today versus prior cycles? 0:00:50.360 --> 0:00:55.360 So if we think about an elongated cycle, so I 0:00:55.400 --> 0:00:58.959 tend to think of this as from the from the bottom, 0:00:59.520 --> 0:01:05.200 from the COVID bottom. Today, you know, we had an 0:01:05.240 --> 0:01:09.240 extended rally off that bottom. We're sitting here at roughly 0:01:09.560 --> 0:01:13.080 three and a half percent of the equity index. 0:01:13.280 --> 0:01:14.000 So you think. 0:01:13.840 --> 0:01:20.000 About XL or just the energy sector more broadly, and 0:01:20.680 --> 0:01:22.959 if you think about the index, whether it's the SMP 0:01:23.120 --> 0:01:26.120 and the Russell, we're still here somewhere around three and 0:01:26.160 --> 0:01:29.880 a half percent of the index. And within that broader 0:01:30.000 --> 0:01:35.959 index energy index, you have x on Chevron, conicgo and 0:01:36.000 --> 0:01:39.640 then everybody else, so they take up roughly call it 0:01:39.680 --> 0:01:44.560 two thirds of the index. So really managers have really 0:01:44.680 --> 0:01:49.520 tended to focus on those names as a barometer or 0:01:49.560 --> 0:01:53.640 a proxy on the overall space. Obviously we had a 0:01:53.720 --> 0:01:59.560 run here in both WTI and more global natural gas commodities. 0:02:00.520 --> 0:02:05.200 The US space has also responded well. The XL is up, 0:02:05.480 --> 0:02:10.360 but call it twenty percent plus, outpacing the broader market. 0:02:10.440 --> 0:02:12.720 But you know here again we're at three and a 0:02:12.760 --> 0:02:16.160 half percent of the index, and folks have really turned 0:02:16.200 --> 0:02:21.520 their attention to other ancillary names within the broader the 0:02:21.600 --> 0:02:24.400 broader complex. As we think about this and the outlook, 0:02:24.639 --> 0:02:28.399 we put out these focus ideas, which are more longer 0:02:28.520 --> 0:02:34.239 term thoughts about either the commodity or the underlying companies. 0:02:34.840 --> 0:02:40.840 I tend to think about WTI as either peaking or 0:02:42.160 --> 0:02:48.600 close to maximum stress, a maximum geopolitical stress. And I 0:02:48.840 --> 0:02:53.200 think about going into year end, so maybe six months 0:02:53.200 --> 0:02:56.440 from now, six seven months from now lower than we 0:02:56.520 --> 0:03:00.440 are today. I think it's unsustainable a triple digit number 0:03:00.600 --> 0:03:04.600 for either WTI or BRENT. We tend to be much 0:03:04.639 --> 0:03:09.880 more structurally bullish all in Henry Hub natural gas structurally 0:03:09.880 --> 0:03:16.280 constructive because of the broader LNG cycle. Also the buildout 0:03:16.360 --> 0:03:20.680 of AI and how natural gas and other sources of 0:03:20.840 --> 0:03:25.560 power gen can help support that build out across the nation. 0:03:26.320 --> 0:03:32.040 So more bullish on that gas, less bullish on WTI. 0:03:32.919 --> 0:03:36.480 As we think about twenty twenty seven, we still think 0:03:36.680 --> 0:03:41.040 consolidation has to play a major role in this mix. 0:03:41.720 --> 0:03:44.760 We think of it as the industry going from this 0:03:45.000 --> 0:03:51.080 shale cycle of growth and resource delineation to now this 0:03:51.240 --> 0:03:57.840 maturity phase where consolidation for scale and asset concentration is 0:03:57.920 --> 0:04:02.800 going to be pivotal. Pivotal you have fewer but larger 0:04:02.880 --> 0:04:06.360 companies than are survivors in this space. We saw that 0:04:06.440 --> 0:04:08.920 in the Permian. We still think you need to see 0:04:08.960 --> 0:04:13.680 that in Appalachia and also the Hainesville. We think this 0:04:14.480 --> 0:04:20.120 crisis has brought about a reordering of capital flows and 0:04:20.560 --> 0:04:26.800 a reordering of seaborn logistics. We think North America is 0:04:26.839 --> 0:04:30.080 a place where capital will flow. We think Latin America 0:04:30.240 --> 0:04:33.560 is a place where capital will flow as well. We 0:04:33.600 --> 0:04:39.719 see Venezuela re emerging as a place for capital. Obviously, 0:04:39.800 --> 0:04:43.960 Brazil we'll see we'll see growth. Argentina we'll see some 0:04:44.000 --> 0:04:46.800 growth as well. So we think the America is the 0:04:46.839 --> 0:04:51.480 Western hemisphere in general, we'll see a substantial reordering of 0:04:51.560 --> 0:04:55.679 flows coming to it as we think about operators looking 0:04:55.880 --> 0:05:02.320 past these traditional routes for energy, these special capital pools 0:05:02.320 --> 0:05:05.760 for energy, and staying away from geopolitical risk and going 0:05:05.800 --> 0:05:08.360 through regimes and environments that are much more constructive. 0:05:09.120 --> 0:05:11.560 Okay, I mean that's a great setup because a lot 0:05:11.560 --> 0:05:13.800 of what you're describing is exactly you know, kind of 0:05:13.839 --> 0:05:15.800 the opportunity set that kind of shows up in real 0:05:15.880 --> 0:05:18.240 asset investing. So, you know, with that, i'd like to 0:05:18.240 --> 0:05:21.279 bring our guests on. I'd like to welcome Will Thompson 0:05:21.320 --> 0:05:24.200 to the podcast. Will is founder and managing partner of 0:05:24.279 --> 0:05:28.760 Massive Capital LLC, a hedge fund focused on real asset investing. Will, 0:05:28.880 --> 0:05:31.280 thanks for joining us, for having me. David, So your 0:05:31.360 --> 0:05:35.320 fun invests in liquid real assets. What edge does public 0:05:35.360 --> 0:05:39.159 markets give you versus a private you know, real asset investors. 0:05:39.760 --> 0:05:43.520 You know, they're two very different sort of return profiles, 0:05:43.560 --> 0:05:48.360 if you will, I think the you know, the private markets, 0:05:49.680 --> 0:05:52.000 you're locked up for quite a quite a bit of time. 0:05:52.080 --> 0:05:54.640 You buy an asset, you know, hopefully at the beginning 0:05:54.640 --> 0:05:58.760 of it's it's development, and you ride it to the 0:05:58.760 --> 0:06:02.839 point where it's producing cash flow. On the other hand, 0:06:03.240 --> 0:06:05.640 you know, you have a great deal of cyclicality along 0:06:05.680 --> 0:06:10.200 that path, and it's harder to take advantage of some 0:06:10.320 --> 0:06:13.480 of that cyclicality in the private structure. I would say 0:06:13.480 --> 0:06:17.840 that the liquid asset class, if you will, does have 0:06:18.160 --> 0:06:23.919 increased volatility, but with that volatility comes additional opportunity to 0:06:24.000 --> 0:06:32.040 take advantage of market missed pricings, geopolitical disruption, changing regime structures, 0:06:32.080 --> 0:06:36.320 and commodity prices. And so I think I don't view 0:06:36.640 --> 0:06:38.600 it as a sort of a wander the other situation. 0:06:38.960 --> 0:06:43.160 I view liquid real assets and private market real assets 0:06:43.200 --> 0:06:47.200 as complements. They sort of fit a very different role 0:06:47.240 --> 0:06:51.160 in people's portfolios, and the big one is deployment and 0:06:51.360 --> 0:06:54.839 opportunity to take advantage of situations as they come up. 0:06:55.920 --> 0:06:57.919 So, if you're not really investing in commodities, but the 0:06:57.960 --> 0:07:00.560 companies that produce them, what would you say the biggest 0:07:00.800 --> 0:07:04.839 misconception investors have about, you know, commodity exposure through equities. 0:07:05.960 --> 0:07:09.360 Yeah, and so my fund's written a paper on this 0:07:09.720 --> 0:07:14.160 just recently, And I think the biggest misconception is that 0:07:14.200 --> 0:07:17.000 they're just in some way just a straight bet on 0:07:17.440 --> 0:07:21.040 the commodity price. Now, I mean market participants who have 0:07:21.480 --> 0:07:23.720 been long time investors in oil and natural gas or 0:07:23.760 --> 0:07:26.760 mining and metals. They recognize that this is not the case, 0:07:26.840 --> 0:07:30.200 but in the end, a lot of theses often end 0:07:30.320 --> 0:07:33.960 up just boiling down to what is the commodity price 0:07:34.000 --> 0:07:37.600 going to do? Even if they recognize there's operational variables involved. 0:07:38.720 --> 0:07:42.360 What ends up actually happening in the markets though, And 0:07:42.480 --> 0:07:44.520 you can view this sort of through the lens of 0:07:44.520 --> 0:07:48.040 a factor model, which you include commodity prices in and 0:07:48.080 --> 0:07:51.400 a couple of different variables such as the asymmetry and 0:07:51.440 --> 0:07:55.880 commodity prices. What you end up finding is that commodity 0:07:55.920 --> 0:07:59.200 prices explain a lot of the day to day volatility 0:07:59.800 --> 0:08:03.360 in equities, but they don't explain a lot of the 0:08:03.400 --> 0:08:07.040 long term returns from the equities. So the return attribution 0:08:07.560 --> 0:08:10.160 after the fact, if you look back, a lot of 0:08:10.200 --> 0:08:13.040 it is not actually explained by the commodity price. It's 0:08:13.080 --> 0:08:17.280 explained by variables, some of which are the factors themselves, 0:08:17.320 --> 0:08:21.880 but a lot of which are idiosyncratic operational variables that 0:08:21.960 --> 0:08:26.000 are sort of at management discretion. First and foremost, these 0:08:26.000 --> 0:08:29.480 are operating businesses, and you need sort of good operators, 0:08:30.160 --> 0:08:33.199 and I think the market, the market tends to miss 0:08:33.240 --> 0:08:37.360 that in the desire to understand the commodity. And you know, 0:08:37.360 --> 0:08:40.080 the commodity is a big macro variable. It's a bit 0:08:40.120 --> 0:08:44.200 sexier than say, you know, a single gold mine or 0:08:44.320 --> 0:08:48.200 oi oil well in the Permian, right, So that's where 0:08:48.200 --> 0:08:50.480 the focus is. I'd say that's a misconception. 0:08:51.520 --> 0:08:55.000 So if you're looking at company specific catalysts, you know, 0:08:55.040 --> 0:08:56.960 what would be an example of a catalyst you think 0:08:57.000 --> 0:08:59.280 the market constantly underestimates. 0:09:00.080 --> 0:09:02.760 You know, there's there's a couple. I mean, you know, 0:09:02.800 --> 0:09:06.080 the highly relevant one now, of course, is the market 0:09:06.120 --> 0:09:10.199 regularly gets geopolitical risk wrong. And that cuts that cuts 0:09:10.200 --> 0:09:13.400 sort of two ways. One, you know, if you if 0:09:13.400 --> 0:09:16.480 you look back over geopolitical events, what you find is 0:09:16.559 --> 0:09:20.080 most of the time they pass fairly quickly, and the 0:09:20.080 --> 0:09:23.360 market buys the dip and moves on. It sees through 0:09:23.400 --> 0:09:26.600 the event to the other side. And and to an 0:09:26.640 --> 0:09:29.480 extent for a lot of events that that is accurate, 0:09:30.160 --> 0:09:33.600 especially at the sort of bigger, broader geopolitical risk level. 0:09:34.200 --> 0:09:38.240 At the same time, there are events for which you 0:09:38.240 --> 0:09:41.080 know it creates regime or step change in the way 0:09:41.120 --> 0:09:43.720 things operate. The market does a really poor job of 0:09:43.760 --> 0:09:46.240 seeing that those events are few and far between. Though 0:09:46.320 --> 0:09:49.480 right and whether I ran, for example, is one right now, 0:09:49.640 --> 0:09:51.560 you know, is still an open question. I think it 0:09:51.640 --> 0:09:54.840 might be, but that's an open question. There's another flavor 0:09:54.880 --> 0:09:57.920 of that risk that the market gets terribly wrong, and 0:09:57.960 --> 0:10:01.160 that is sort of more political risks, which is to say, 0:10:01.200 --> 0:10:06.679 the risk that individual companies experience on an individual asset 0:10:07.000 --> 0:10:10.440 as a result of government action. The market has a 0:10:10.480 --> 0:10:15.160 tendency to view those risks through the lens of almost 0:10:15.240 --> 0:10:19.040 a more country level risk analysis, right, sort of an 0:10:19.120 --> 0:10:22.760 economic a Moody's Report on risk. But in fact, the 0:10:22.800 --> 0:10:26.160 political risk that most companies experience is more about that 0:10:26.240 --> 0:10:30.400 individual company's relationship with the government and with people in 0:10:30.480 --> 0:10:34.920 power than it is about say, the overall economic or 0:10:35.280 --> 0:10:37.719 sort of Moody's level political risk in the country, and 0:10:38.000 --> 0:10:41.520 that both of those the market gets wrong regularly. That 0:10:41.559 --> 0:10:46.160 creates opportunities. I would also say that the market, the 0:10:46.200 --> 0:10:48.680 market has a very short term view in regards to 0:10:48.920 --> 0:10:54.600 very long term assets, typically fracking and the US market. 0:10:54.640 --> 0:10:57.080 That's sort of Vince's world. I don't play so much 0:10:57.120 --> 0:10:59.079 in that world. I haven't made a lot of investments 0:10:59.080 --> 0:11:02.280 that is a shorter Michael oil form format, and so 0:11:02.360 --> 0:11:05.280 maybe that shorter sort of viewpoint works a little bit 0:11:05.280 --> 0:11:08.120 better in terms of valuations. But when you're talking about 0:11:08.120 --> 0:11:11.640 say copper minds or offshore oil mindes, the timelines are 0:11:11.679 --> 0:11:15.840 just sort of outside of most investors' sort of a 0:11:15.880 --> 0:11:20.559 frame of reference that creates opportunity, and then the path 0:11:21.480 --> 0:11:24.640 from point A to point B. There's a lot of 0:11:25.440 --> 0:11:28.960 events that occur on those paths, to standing up projects, 0:11:29.320 --> 0:11:35.600 to harvesting returns from projects, and operational assets don't run 0:11:35.760 --> 0:11:40.400 as smoothly as say a digital software as a service, right, 0:11:40.960 --> 0:11:43.760 software as a service prints money every month, every week, 0:11:43.800 --> 0:11:47.160 every day. There's a great deal of path dependency in 0:11:47.200 --> 0:11:50.520 real assets, and that path is something that isn't smooth 0:11:50.520 --> 0:11:53.920 and you have to take advantage of. Markets don't seem 0:11:53.960 --> 0:11:57.800 to be terribly good at taking advantage of that path 0:11:57.960 --> 0:12:01.560 or recognizing that the path is less straight line than 0:12:01.600 --> 0:12:02.520 people realize. 0:12:03.400 --> 0:12:04.640 So if we take a little bit of a step 0:12:04.679 --> 0:12:06.679 back and you know, just talk about your process a 0:12:06.720 --> 0:12:09.760 little bit. When you're evaluating a new idea in this space, 0:12:10.000 --> 0:12:12.520 what does your process actually look like from you know, say, 0:12:12.559 --> 0:12:15.480 maybe first look to deciding you're going to invest in 0:12:15.480 --> 0:12:16.840 a position in the fund. 0:12:19.160 --> 0:12:24.680 So for us we run pretty concentrated, with about fifteen 0:12:24.760 --> 0:12:27.240 positions in total and eighty percent of the portfolio in 0:12:27.280 --> 0:12:31.480 the top ten. So we do a lot of deep research. 0:12:31.920 --> 0:12:36.000 Our ideas tend to come from two areas sometimes, and 0:12:36.040 --> 0:12:40.520 this tends to be the lesser sort of source of ideas. 0:12:40.600 --> 0:12:43.440 It's a thematic, and we'll start with a thematic and 0:12:43.520 --> 0:12:46.760 try to evaluate whether sort of the market's perspective on 0:12:46.840 --> 0:12:50.280 that thematic and outlook for it makes sense. If it 0:12:50.880 --> 0:12:54.320 doesn't make sense, we will start to look for look 0:12:54.400 --> 0:12:57.360 through the companies within that space and trying to find 0:12:57.400 --> 0:13:01.520 an opportunity. On the other hand, I would say that 0:13:02.120 --> 0:13:06.079 you know what we do investing a lot of times 0:13:06.080 --> 0:13:11.880 in project companies. It's about bottom up surfacing ideas from 0:13:12.000 --> 0:13:14.640 networks who have a good idea of the types of 0:13:14.679 --> 0:13:18.240 projects that are kicking off in various different places, and 0:13:18.320 --> 0:13:19.920 so we spend a lot of time and a lot 0:13:19.920 --> 0:13:24.959 of attention on you know, who's building what, where and why. 0:13:25.840 --> 0:13:29.640 We're always sort of seeking to find a company that 0:13:31.080 --> 0:13:35.800 answers a question about a demand, that answers that question 0:13:35.880 --> 0:13:38.080 sort of better than anyone else, right, So does this 0:13:38.120 --> 0:13:41.000 copper mind addressed demand needs better than someone else, does 0:13:41.040 --> 0:13:46.480 this oil producer address needs better than someone else? And 0:13:46.559 --> 0:13:50.240 so that you know, that's sort of the big, sort 0:13:50.280 --> 0:13:53.439 of high level, I'd say from at a more sort 0:13:53.440 --> 0:13:55.920 of resource company level, we tend to look at sort 0:13:55.920 --> 0:13:59.720 of geology, the scale and complexity of what they're doing. 0:14:01.160 --> 0:14:04.040 Grades high versus low. One is not good or bad. 0:14:04.320 --> 0:14:08.079 It sort of depends on how a company is going 0:14:08.120 --> 0:14:11.839 to monetize an asset. Then there's the infrastructure that exists 0:14:11.880 --> 0:14:14.000 around the asset, whether it needs to be built, whether 0:14:14.040 --> 0:14:21.200 it exists already. Jurisdiction is obviously quite critical, but jurisdiction 0:14:21.440 --> 0:14:25.520 is one of the more nuanced variables where a lot 0:14:25.560 --> 0:14:30.160 of the headline risks mask what are in fact pretty 0:14:30.200 --> 0:14:34.040 decent jurisdictions to operate in. And then, you know, most 0:14:34.080 --> 0:14:38.000 important in my mind is the management team. These are 0:14:38.040 --> 0:14:42.760 not businesses that an idiot can run, and the same 0:14:42.840 --> 0:14:46.800 team oftentimes cannot run the same company at different points 0:14:46.800 --> 0:14:50.560 in its life cycle. So lining up management with where 0:14:50.560 --> 0:14:52.680 the company is in its life cycle and what the 0:14:52.720 --> 0:14:56.840 expectations of management are for that stage in a company's 0:14:56.840 --> 0:14:58.480 life cycle is really critical. 0:14:59.640 --> 0:15:01.920 You meant, the portfolio is pretty concentrated. I think you 0:15:01.960 --> 0:15:04.000 said that, you know, eighty percent in the top ten 0:15:04.240 --> 0:15:07.000 if it was correct. How do you think about size 0:15:07.000 --> 0:15:10.560 and conviction you know, versus you know, potential drawdowns in 0:15:10.680 --> 0:15:11.720 cyclical sectors. 0:15:13.240 --> 0:15:21.120 Yeah, so there's sort of there's three types of drawdowns 0:15:21.120 --> 0:15:23.280 to be concerned with in my mind, right, there's sort 0:15:23.320 --> 0:15:26.200 of a correlation of one events where everything draws down, 0:15:26.320 --> 0:15:29.760 right and the market draws down overall, covid, et cetera. 0:15:30.880 --> 0:15:34.680 Those types of events we managed with a tail risk 0:15:34.720 --> 0:15:38.080 catch and so there's nothing particularly you know, company specific 0:15:38.080 --> 0:15:48.080 about it. Then there's uh, I say, uh, there's geopolitical risk, 0:15:48.120 --> 0:15:52.280 there's the correlation of one events. Uh. Then there's company 0:15:52.320 --> 0:15:57.760 specific risks, and we manage the company specific risks mostly 0:15:57.800 --> 0:16:00.440 by focusing on the businesses themselves and being able to 0:16:00.440 --> 0:16:05.920 sort of rapidly re evaluate our thesis and utilize that 0:16:06.000 --> 0:16:09.320 draw down to our advantage. The expectation, in my opinion, 0:16:09.400 --> 0:16:13.160 with real asset investing in liquid markets, should be that 0:16:13.280 --> 0:16:16.160 every asset ul will draw down at some point, and 0:16:16.640 --> 0:16:18.440 that needs to be built in. That's that sort of 0:16:18.560 --> 0:16:21.800 path that I described that should be built into your assumption. 0:16:21.920 --> 0:16:25.240 And so you need to have a diversity of assets 0:16:25.640 --> 0:16:28.680 that hopefully are on different development cycles and pay close 0:16:28.720 --> 0:16:31.760 attention to that so that when operational issues come up 0:16:31.840 --> 0:16:35.120 and they draw down on different timelines, you can take 0:16:35.120 --> 0:16:40.360 advantage of that. The third sort of risk is straight 0:16:40.400 --> 0:16:46.200 commodity risk commodity beta. We have a very i think 0:16:46.320 --> 0:16:50.320 differentiated view on how to manage the commodity beta. Our 0:16:50.440 --> 0:16:56.720 experience is that commodity companies, their beta tends to increase 0:16:57.360 --> 0:17:01.760 to the commodity quite rapidly on drawdat and so you 0:17:01.840 --> 0:17:07.720 want to have, rather than collecting a diversity of assets, 0:17:07.760 --> 0:17:12.120 having a lot of diversification across commodities and many names 0:17:12.200 --> 0:17:16.040 in single commodities, say like ten oil names. Ten oil 0:17:16.119 --> 0:17:20.639 names has a tendency to aggregate your commodity beta exposure, 0:17:21.680 --> 0:17:25.600 whereas having a couple of well chosen names tends to 0:17:25.640 --> 0:17:31.440 actually present your portfolio with less commodity beta exposure. And 0:17:31.520 --> 0:17:35.520 so you can avoid some of the asymmetry in commodity 0:17:35.560 --> 0:17:40.960 beta drawdowns by being more careful and selective with the assets, 0:17:41.040 --> 0:17:44.200 especially where they sit on the cost curve or where 0:17:44.240 --> 0:17:48.280 they sort of what their margin profile looks like. And 0:17:48.359 --> 0:17:51.919 so one strategy we sort of disagree with would be 0:17:52.200 --> 0:17:55.399 a very common strategy where people would say take a 0:17:55.400 --> 0:17:58.760 bar ball, and they'd say pick an exon mobile and 0:17:58.800 --> 0:18:02.280 then they'd pick a name your you know, young up 0:18:02.359 --> 0:18:04.800 and coming e n P. Well, that young up and 0:18:04.840 --> 0:18:08.600 coming NP in a commodity price draw down, its commodity 0:18:08.680 --> 0:18:12.520 beta is going to shoot so high that it probably 0:18:12.600 --> 0:18:16.320 draws down worse than the return on the upside from 0:18:16.320 --> 0:18:19.760 a similar type move. And so that that Barbell strategy 0:18:19.800 --> 0:18:24.360 tends to build a portfolio UH that is UH will 0:18:24.400 --> 0:18:28.440 outperform ours in an up cycle, but on a through 0:18:28.520 --> 0:18:32.439 cycle basis tends to have really nasty draw downs. And 0:18:32.480 --> 0:18:35.320 the challenge with draw downs and our industries is you've 0:18:35.359 --> 0:18:37.840 got to hold You've got to hold the stock, and 0:18:37.880 --> 0:18:39.840 so you've got to be able to live with the volatility. 0:18:41.160 --> 0:18:43.119 Let's have one more question. I know Vince wants to 0:18:43.160 --> 0:18:45.560 jump in, but one more question on process. You know 0:18:45.640 --> 0:18:47.960 you mentioned both you know, stock picking, bottom up stock 0:18:48.040 --> 0:18:50.639 kicking as well as looking at you know, macro views. 0:18:50.800 --> 0:18:54.200 How do you balance the two in your process? MM? 0:18:54.880 --> 0:19:00.840 Yeah, it's it's really quite difficult. There's row is zooming 0:19:00.880 --> 0:19:03.600 in and zooming out. It's sort of this continuous back 0:19:03.640 --> 0:19:07.239 and forth where we have to view the whole, and 0:19:07.280 --> 0:19:09.240 we have to view the individual pieces, and we have 0:19:09.280 --> 0:19:11.760 to view details on the individual pieces, some the pieces 0:19:11.800 --> 0:19:14.120 up to the whole and then view it bottom up 0:19:14.160 --> 0:19:17.920 to top down and back and forth. It's really quite challenging, 0:19:18.280 --> 0:19:22.520 and at different points in each company's life cycle, one 0:19:23.359 --> 0:19:26.119 macro or micro, let's call it one macro or micro 0:19:26.359 --> 0:19:29.800 takes on more precedents than the other, and so you 0:19:29.840 --> 0:19:32.520 have to sort of identify at every moment and we 0:19:32.560 --> 0:19:35.399 sort of do it on a quarterly basis. You know 0:19:35.880 --> 0:19:39.360 what takes priority for that individual company and its potential 0:19:39.400 --> 0:19:41.040 return stream in your portfolio. 0:19:43.880 --> 0:19:47.679 Hey, well, when you think about the universe of names, 0:19:48.040 --> 0:19:53.000 the opportunity set right there is there is that broad 0:19:53.040 --> 0:19:57.919 opportunity set within each name. There is the opportunity of 0:19:57.960 --> 0:20:01.520 where you guys want to stack with in the capital structure. 0:20:02.119 --> 0:20:06.440 Any general thoughts there on what those preferences are? 0:20:06.680 --> 0:20:10.040 Are we talking debt versus equity type of thee? 0:20:10.240 --> 0:20:10.440 Yeah? 0:20:10.440 --> 0:20:11.680 Within that capital structure? 0:20:11.720 --> 0:20:14.199 Yeah, yeah, Sorry, you started with the universe and then 0:20:14.200 --> 0:20:17.120 so I wasn't sure if there was something else. Yeah, 0:20:17.119 --> 0:20:21.919 I think you know, every once in a while we 0:20:22.080 --> 0:20:27.159 partake in in convertible debt within the mining space. I 0:20:27.200 --> 0:20:29.840 tend to think that convertible debt in the mining space 0:20:29.920 --> 0:20:34.400 can work quite nicely. My preference is equity. I think 0:20:34.440 --> 0:20:39.840 that debt and natural resources companies in particular, it's it's 0:20:39.880 --> 0:20:44.440 a very tricky game to play, especially because a lot 0:20:44.480 --> 0:20:48.600 of the debt ends up being front loaded on projects, 0:20:48.880 --> 0:20:53.040 project finance. Not all of that is easily accessible in 0:20:53.119 --> 0:20:56.920 markets to participants. Not all of it is publicly traded. 0:20:57.640 --> 0:20:59.400 You know, a lot of there's a lot of high 0:20:59.440 --> 0:21:01.159 yield debt for oil and natural gas companies in the 0:21:01.240 --> 0:21:04.280 United States, but that's, to be perfectly frame, more an 0:21:04.320 --> 0:21:09.280 aberration than a global reality. So we tend to play 0:21:09.280 --> 0:21:15.560 in the equity space, and that's our preference. But we 0:21:15.640 --> 0:21:18.280 do from time to time look at convertible data, especially 0:21:18.320 --> 0:21:19.080 in mining. 0:21:19.920 --> 0:21:25.000 And is it public equity or is there an opportunity 0:21:25.040 --> 0:21:30.240 for you all in the p sponsor space as well. 0:21:30.560 --> 0:21:33.560 So we do take positions in the private markets from 0:21:33.600 --> 0:21:37.800 time to time, but we have a sort of unwritten rule. 0:21:37.880 --> 0:21:40.520 I would say that we tend to only engage in 0:21:40.520 --> 0:21:44.280 the private markets if there's a very clear route to 0:21:44.320 --> 0:21:47.920 going public, sort of within twelve to twenty four months. 0:21:47.240 --> 0:21:51.320 That's our sort of guardrails. We are starting to see 0:21:51.480 --> 0:21:56.200 more private opportunities in mining oil and natural gas. Private 0:21:56.200 --> 0:21:58.879 opportunities have always existed, There have always been plenty of them, 0:21:58.960 --> 0:22:03.080 especially in the United States, but less so in our 0:22:03.119 --> 0:22:06.000 experience in mining. We are starting to see more of 0:22:06.040 --> 0:22:08.040 that in the mining space, which we think is an 0:22:08.080 --> 0:22:11.600 interesting evolution because there are a lot of mining projects 0:22:11.680 --> 0:22:16.040 that are really more appropriate in our opinion, for private 0:22:16.040 --> 0:22:17.440 ownership than they are public. 0:22:19.040 --> 0:22:23.399 And how would your rank order the geographies in terms 0:22:23.400 --> 0:22:27.600 of the investment universe more broadly outside of just maybe 0:22:27.760 --> 0:22:29.880 the US or North America. 0:22:30.560 --> 0:22:34.720 From opportunity set perspective, Yeah, yeah, yeah, well so, I 0:22:34.760 --> 0:22:37.119 mean a lot of the equities, So for mining, I 0:22:37.160 --> 0:22:39.200 would say a lot of the equities are listed in 0:22:39.680 --> 0:22:43.400 Canada or Australia, but the risks lie elsewhere. I would 0:22:43.400 --> 0:22:45.840 sort of echo the oil and natural gas sentiment you 0:22:45.920 --> 0:22:51.480 had with Latin America. It's a tremendous jurisdiction. It does 0:22:51.640 --> 0:22:55.480 have various different types of political and geopolitical risk associated 0:22:55.520 --> 0:23:01.200 with it, but the geological endowment is spectacular. The availability 0:23:01.359 --> 0:23:06.320 of labor and sort of growing infrastructure to support mining 0:23:06.320 --> 0:23:09.679 assets is tremendous, and so Latin America is sort of 0:23:09.720 --> 0:23:12.600 a go to location right now, I'd say. I'd also 0:23:12.680 --> 0:23:17.160 say that Africa is probably one of the more interesting 0:23:17.240 --> 0:23:22.440 jurisdictions because of how overlooked it is and how the 0:23:22.480 --> 0:23:27.240 tendency of markets to assume that the political risk creates 0:23:27.240 --> 0:23:30.040 a sort of a no go opportunity in Africa. At 0:23:30.040 --> 0:23:33.520 the same time, you know the United States and Europe. 0:23:33.920 --> 0:23:36.639 Europe being sort of a little further behind the United States, 0:23:36.680 --> 0:23:42.760 but because of industrial policy, is becoming a very fascinating 0:23:42.800 --> 0:23:46.840 location for mining, with a lot of opportunities and a 0:23:46.840 --> 0:23:50.399 lot of assists from the government. You do sort of 0:23:50.440 --> 0:23:53.359 build into your thesis a new variable though when you 0:23:53.400 --> 0:23:55.320 go in the United States, because you have to have 0:23:55.400 --> 0:23:57.240 a better feel, if you will, for some of the 0:23:57.280 --> 0:24:00.480 politics that are going on here domestically from oil and 0:24:00.520 --> 0:24:04.200 natural gas. I'm actually a fan of Europe and European names, 0:24:04.320 --> 0:24:09.359 which is a bit of an aberration the US names 0:24:09.400 --> 0:24:11.520 I know very little about. In the grand scheme of things, 0:24:11.520 --> 0:24:14.080 That's an area of great expertise for some people, and 0:24:14.280 --> 0:24:16.520 I really have no edge in it. I have a 0:24:16.560 --> 0:24:18.159 lot of friends who live in Texas and invest and 0:24:18.160 --> 0:24:20.000 oil and natural gas. I can't compete with them. They 0:24:20.040 --> 0:24:24.280 live in Texas, right, it is what it is. So 0:24:25.240 --> 0:24:27.199 I tend to think Europe is interesting. But one of 0:24:27.240 --> 0:24:29.960 the things I think is interesting about Europe is that 0:24:30.119 --> 0:24:34.040 a lot of assets that were on US books prior 0:24:34.080 --> 0:24:38.639 to fracking, and a lot of the offshore overseas exploration 0:24:39.160 --> 0:24:44.160 that US companies were doing prior to the fracking boom 0:24:44.280 --> 0:24:47.840 that has migrated to a lot of European names. And 0:24:47.880 --> 0:24:51.280 so now you have companies like Harbor Energy, which is 0:24:51.359 --> 0:24:56.240 previously a north sea focused firm that is now in fact, 0:24:56.320 --> 0:24:59.680 one of the world's most diversified oil and natural gas 0:24:59.720 --> 0:25:02.920 produce users at that let's call it, you know, sub 0:25:03.320 --> 0:25:06.240 you know, Sub Exxon, sub Chevron, the integrated name sitting 0:25:06.320 --> 0:25:11.840 right below them. They have assets in Argentina, Mexico, North America, 0:25:12.480 --> 0:25:17.280 and then throughout Europe. Right, It's highly diversified. So I 0:25:17.320 --> 0:25:20.080 tend to think Europe is an overlooked opportunity in oil 0:25:20.080 --> 0:25:23.480 and natural gas, especially in the current environment. 0:25:23.720 --> 0:25:25.920 I just want to kind of follow up on, you know, management, 0:25:26.000 --> 0:25:28.920 something that you had mentioned earlier. You know, it seems 0:25:28.920 --> 0:25:32.280 central to your process. Actually, what would separate a great 0:25:32.320 --> 0:25:35.440 operator and energy or mining from an average one. 0:25:35.600 --> 0:25:39.320 I think that really critical. Again, I would return to 0:25:39.400 --> 0:25:42.960 that that statement I made about where in a company's 0:25:43.000 --> 0:25:46.600 life cycle it is. That's really the first cut we 0:25:46.680 --> 0:25:49.480