WEBVTT - How to Make Money From the Booming Demand for Energy 0:00:02.720 --> 0:00:19.560 Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to 0:00:19.600 --> 0:00:22.960 another episode of The Odd Laws podcast. I'm Joe Wisenthal 0:00:23.079 --> 0:00:26.120 and I'm Tracy Alloway. Tracy, I saw an interesting headline 0:00:26.320 --> 0:00:29.920 this morning, just one good point. I saw a million 0:00:30.080 --> 0:00:32.880 interesting headlines, but one that sort of caught my mind, 0:00:33.120 --> 0:00:35.920 sort of market moving, is that there was this comment 0:00:35.960 --> 0:00:39.680 from Jensen Wong. He was at a conference, the CEES conference, 0:00:40.159 --> 0:00:42.839 and he was talking about how in the future, I 0:00:42.840 --> 0:00:45.159 guess their chips are getting more efficient as chips send 0:00:45.240 --> 0:00:48.199 to do that they may not need as much intense 0:00:48.280 --> 0:00:51.760 cooling infrastructure or cooling equipment for future data centers. And 0:00:51.800 --> 0:00:54.600 a bunch of those like cooling names like train technology. 0:00:54.640 --> 0:00:56.720 They're like really getting clobbered because we know those have 0:00:56.760 --> 0:00:59.400 been like some of the big winners from the AI boom. 0:00:59.480 --> 0:01:01.640 I can hear all the private equity shops that bought 0:01:01.720 --> 0:01:05.360 each back outfit streaming from over here. No, it is 0:01:05.400 --> 0:01:08.560 a really interesting headline, right because you think about this 0:01:08.760 --> 0:01:12.720 as a technology space. AI is technology, but it has 0:01:12.760 --> 0:01:18.200 this huge infrastructure aspect attached to it. Infrastructure investors, from 0:01:18.200 --> 0:01:20.840 what I understand, you know, historically have tended to like 0:01:21.400 --> 0:01:24.920 relatively stable returns. Right, You invest in it because you 0:01:24.959 --> 0:01:28.880 expect this to be a pretty reliable business. But because 0:01:28.880 --> 0:01:32.080 you have infrastructure that is now tied to tech, it 0:01:32.120 --> 0:01:35.120 seems like there's a pretty big risk that like every year, 0:01:35.319 --> 0:01:37.959 every two years or maybe even months now, there's going 0:01:38.040 --> 0:01:40.360 to be some huge tech upgrade that just changes the 0:01:40.400 --> 0:01:41.360 equation entirely. 0:01:41.560 --> 0:01:43.039 This is a good point, Like I think, like the 0:01:43.080 --> 0:01:45.720 first time years and years ago I started hearing about 0:01:46.000 --> 0:01:49.000 infrastructure investing is like, oh, we bought a toll road, right, 0:01:49.200 --> 0:01:53.000 we bought an airport, and airports by and large they 0:01:53.000 --> 0:01:55.920 don't get disrupted very much, or a toll roads, like 0:01:56.280 --> 0:01:59.920 the basic business of some of these things has remained stable. 0:02:00.000 --> 0:02:02.880 But yeah, to your point, especially now that there's such 0:02:02.920 --> 0:02:05.200 a link with tech, they's just like the sort of 0:02:05.280 --> 0:02:07.360 volatility of what's going to win out or what's needed 0:02:07.840 --> 0:02:08.840 seems highly uncertain. 0:02:08.960 --> 0:02:09.200 Yeah. 0:02:09.200 --> 0:02:11.320 And of course the other obvious thing going on at 0:02:11.320 --> 0:02:15.120 the moment is everyone's talking about AI valuations. Is the 0:02:15.200 --> 0:02:17.680 build out getting ahead of itself? And are all these 0:02:17.720 --> 0:02:20.160 companies actually going to be able to generate enough cash 0:02:20.160 --> 0:02:22.200 flow that backs up all this investment spend? 0:02:22.320 --> 0:02:25.000 You know the other thing too, and It's something that 0:02:25.040 --> 0:02:28.480 we've observed, which is if you go back to infrastructure 0:02:28.520 --> 0:02:30.400 investing is not a new thing by any stretch, but 0:02:30.440 --> 0:02:33.720 you go back to the twenty tens, and so much 0:02:33.760 --> 0:02:35.760 of the money that was made then is sort of 0:02:35.800 --> 0:02:39.880 like financial engineering, financial opportunities who had dry powder at 0:02:39.880 --> 0:02:42.440 a time when everyone is broke and so forth. And 0:02:42.480 --> 0:02:44.800 one of the themes that's recurring over and over again 0:02:45.080 --> 0:02:48.000 these days is just like to make money, it feels 0:02:48.000 --> 0:02:49.760 like you really have to get your hands dirty. Physical 0:02:49.840 --> 0:02:52.880 things of all sorts, and physical things have just been 0:02:52.880 --> 0:02:56.440 in our face constantly since COVID, and then it's accelerated 0:02:56.639 --> 0:02:59.840 because of there's so much public money pouring into this, 0:03:00.720 --> 0:03:04.240 so governments around the world really opening up the tabs. 0:03:04.600 --> 0:03:07.960 And then over the weekend we're recording this January sixth, 0:03:07.960 --> 0:03:11.240 by the way, obviously the Maduro News and so then 0:03:11.280 --> 0:03:12.919 there's all of this stuff. It was like, oh, who's 0:03:12.960 --> 0:03:15.800 going to rebuild all of that oil infrastructure if that 0:03:15.919 --> 0:03:19.239 oil is ever going to profitably be tabbed? Like this 0:03:19.320 --> 0:03:21.920 is just sort of the physical world is sort of 0:03:21.919 --> 0:03:22.920 like the story of our time. 0:03:23.040 --> 0:03:26.520 Are people talking about public private partnerships? Yet I feel 0:03:26.560 --> 0:03:29.280 like this is another cyclical thing that just pops up 0:03:29.280 --> 0:03:31.320 every once in a while. I'm going to do let's 0:03:31.320 --> 0:03:33.240 bring in our guests, and while we do that, I'm 0:03:33.280 --> 0:03:35.240 going to do a news trend search to see where 0:03:35.280 --> 0:03:37.480 we are in the public private partnership cycle. 0:03:37.760 --> 0:03:39.560 Yes, let's bring our guests. Well, we really do have 0:03:39.640 --> 0:03:42.000 the perfect guest, lots of experience in this realm. We're 0:03:42.040 --> 0:03:44.360 going to be speaking with Tyler Rosenligd. He's a portfolio 0:03:44.480 --> 0:03:50.480 manager globalisted Infrastructure and natural resource equities at Cohen and Steers. 0:03:50.520 --> 0:03:52.560 So we're going to talk about all this stuff. Tyler, 0:03:52.600 --> 0:03:54.360 thank you so much for coming on Outla, Thanks for 0:03:54.400 --> 0:03:54.680 having me. 0:03:54.680 --> 0:03:55.360 I'm real excited. 0:03:55.600 --> 0:03:57.040 What's your job? What do you do? Why are we 0:03:57.040 --> 0:03:59.240 talking to you? What's going and Steers, Let's let's get 0:03:59.280 --> 0:04:00.440 that out of the Yeah. 0:04:00.480 --> 0:04:03.280 So, Conan Steers were a long only asset manager. We 0:04:03.320 --> 0:04:06.920 primarily invest in real assets and alternative income strategies. So 0:04:06.960 --> 0:04:10.080 we're you know, managing mutual funds and ETFs, active ETFs 0:04:10.080 --> 0:04:13.520 and separate accounts for institutional investors. Focused on a couple 0:04:13.640 --> 0:04:17.160 niche things, primarily real assets strategies here and now. So 0:04:17.240 --> 0:04:19.719 that's things like listed ruts, which were really well known 0:04:19.760 --> 0:04:22.520 for commodities. And then where I help is our global 0:04:22.520 --> 0:04:25.680 listed infrastructure and our natural resource equity strategies. So these 0:04:25.720 --> 0:04:29.800 are long only strategies. Investing across in infrastructure, it's you 0:04:29.800 --> 0:04:33.360 know we call the cute subsectors, so that's communications, things 0:04:33.400 --> 0:04:37.240 like cell towers, data centers, and satellites. Utilities, so this 0:04:37.320 --> 0:04:41.200 is electric, gas, water, renewables, transportation, the toll roads that 0:04:41.240 --> 0:04:44.400 you talked about, toll roads, airports, marine ports, and freight rails. 0:04:44.760 --> 0:04:47.720 And then e energy is misstream pipelines and so forth. 0:04:47.760 --> 0:04:50.440 So we try to look at everything and give investors 0:04:50.480 --> 0:04:52.919 exposure to what is really a dynamic and exciting place. 0:04:53.360 --> 0:04:56.080 So how busy have you been over the past year 0:04:56.200 --> 0:04:56.440 or two. 0:04:56.760 --> 0:04:59.279 It's been very busy. I Mean, my joke used to 0:04:59.279 --> 0:05:01.520 be that I invent and all the old economy stuff. 0:05:01.760 --> 0:05:03.680 Now it's like the new economy stuff, and it's the 0:05:03.680 --> 0:05:05.919 stuff that people are really excited about. And I'd say 0:05:06.360 --> 0:05:08.760 we've seen a lot of these trends kind of coming 0:05:08.800 --> 0:05:11.240 for a long time, and we've talked about them for 0:05:11.279 --> 0:05:14.599 probably a decade, but they've really only surfaced kind of 0:05:14.600 --> 0:05:17.080 to the front page of Bloomberg every morning in the 0:05:17.120 --> 0:05:19.960 last eighteen months, and I think that's really exciting, and 0:05:20.000 --> 0:05:22.480 we've been really busy because there's lots of new opportunities. 0:05:22.760 --> 0:05:30.560 We see investment cases in traditional utilities, tons of new alternatives, nuclear, renewables, pipelines, 0:05:30.760 --> 0:05:34.520 lots of new businesses, capital formation, great opportunities. 0:05:34.080 --> 0:05:38.039 And what's the balance of power actually like between investors 0:05:38.400 --> 0:05:41.680 and the companies that need investment at the moment, because 0:05:41.720 --> 0:05:44.120 I imagine it could go either way right now, Like 0:05:44.160 --> 0:05:47.840 the energy needs for data centers are absolutely massive, so 0:05:47.920 --> 0:05:49.919 it needs tons and tons of capital. But at the 0:05:49.920 --> 0:05:53.040 same time, a lot of investors, as we've been discussing, 0:05:53.080 --> 0:05:56.600 have been very, very eager to identify opportunities and get 0:05:56.600 --> 0:05:57.360 their foot in the door. 0:05:57.800 --> 0:05:59.720 Yeah. I mean in the world that I live in, 0:05:59.760 --> 0:06:02.359 which is the sort of hard asset economy, i'd say 0:06:02.760 --> 0:06:05.000 having capital is very important. But we're now at a 0:06:05.040 --> 0:06:07.240 place in the cycle where the investment needs are so 0:06:07.440 --> 0:06:11.000 big that it's creating pretty big challenges for companies. And 0:06:11.240 --> 0:06:14.400 take the utility sector as an example. Eighteen months ago, 0:06:14.440 --> 0:06:17.120 if you said, hey, utility capex is going to accelerate 0:06:17.360 --> 0:06:20.120 and earnings growth is going to accelerate, every utility investor 0:06:20.160 --> 0:06:22.800 would say that's great. We've gone to such a level 0:06:22.880 --> 0:06:25.600 now that it's actually really nuanced answer. You know, there 0:06:25.680 --> 0:06:28.960 is so much capital required in utility investment today that 0:06:29.000 --> 0:06:32.560 it's really causing affordability problems and some utilities we think 0:06:32.600 --> 0:06:35.600 are really going to struggle because elections are being one 0:06:35.680 --> 0:06:39.200 about utility bills. Other utilities. On the other hand, actually 0:06:39.200 --> 0:06:41.880 you invite data centers into your service territory and it 0:06:42.200 --> 0:06:45.400 lowers bills, and so today, I actually think from an 0:06:45.400 --> 0:06:49.080 active management perspective, the dispersion in terms of outcomes and 0:06:49.160 --> 0:06:51.960 investment opportunities is as wide as it's ever been. So 0:06:52.160 --> 0:06:54.240 that's a really good thing for us as investors, and 0:06:54.279 --> 0:06:55.839 I think it's not going to end. You know, we 0:06:55.880 --> 0:06:58.599 think these are structural, secular trends that are here for 0:06:58.640 --> 0:07:00.640 a while, and we don't think that is a fad. 0:07:00.680 --> 0:07:02.680 From an infrastructure investment perspective, we. 0:07:02.839 --> 0:07:06.960 Just real quickly, data center's lowering bills. Headlines like that 0:07:07.000 --> 0:07:08.839 don't go viral. What's that all about. 0:07:09.040 --> 0:07:11.280 Yeah, it's very nuanced. So if you think about the 0:07:11.360 --> 0:07:14.640 utility business model, you know, very simplistically, the utility invests 0:07:14.680 --> 0:07:16.480 in its rate base. So let's say their rate base 0:07:16.600 --> 0:07:19.600 is ten billion dollars. They're allowed a return on equity, 0:07:19.720 --> 0:07:22.400 maybe it's ten percent. They aren't a billion dollars. This 0:07:22.520 --> 0:07:24.840 is very simple math. Isn't how it exactly works. But 0:07:25.240 --> 0:07:28.000 then they charge their cost to customers, and that's their 0:07:28.000 --> 0:07:30.880 revenue requirement what we as bill payers pay. You double 0:07:30.920 --> 0:07:33.400 your rate base. If you don't increase your customers, you 0:07:33.440 --> 0:07:35.320 could actually double your costs. And that's a lot of 0:07:35.360 --> 0:07:37.880 what's happening here in New York City and Washington, DC 0:07:37.960 --> 0:07:41.720 and other places. There are some utilities that are long 0:07:41.840 --> 0:07:44.640 generation or they're long power. So just think about that 0:07:44.760 --> 0:07:48.120 very simplistically. You've got a utility, it's got a rate base, 0:07:48.200 --> 0:07:51.720 and inside that rate base, every rate payer is paying 0:07:51.960 --> 0:07:55.760 for power that's not actually being used. Bring a data 0:07:55.800 --> 0:07:59.480 center into that service territory. The data center itself might 0:07:59.520 --> 0:08:02.360 consume that power, and you, as the ratepayer, are not 0:08:02.440 --> 0:08:05.320 actually going to be burdened by that cost in your 0:08:05.480 --> 0:08:08.680 monthly bill. And so for us, we think it's really important. 0:08:08.680 --> 0:08:11.720 You've got to understand the regulation, who the commissioners are, 0:08:12.040 --> 0:08:15.240 what their power systems are, like their generation and so forth. 0:08:15.280 --> 0:08:17.600 And there are examples of data centers being really good 0:08:18.080 --> 0:08:21.040 for both the utility and the customer. But that's again, 0:08:21.240 --> 0:08:23.800 it's very nuanced, and it really depends on where you 0:08:23.880 --> 0:08:26.360 are and sort of what your asset base looks like. 0:08:26.880 --> 0:08:28.760 I talk a little bit more about that because we've 0:08:28.800 --> 0:08:32.280 done episodes on the political risks involved with the data 0:08:32.320 --> 0:08:34.320 center build out, and this seems to be something that 0:08:34.440 --> 0:08:37.240 is really gaining traction, especially as we go into the 0:08:37.240 --> 0:08:40.280 midterms and we see politicians sort of, you know, laying 0:08:40.360 --> 0:08:44.719 down their positions on this particular issue. But how feasible 0:08:44.840 --> 0:08:46.560 is it that you could get a data center that 0:08:46.600 --> 0:08:50.280 could actually in some way improve the electricity market in 0:08:50.320 --> 0:08:53.320 a particular state or location. And then I imagine that 0:08:53.720 --> 0:08:55.400 you have to have a lot of room, right to 0:08:55.440 --> 0:08:57.400 have a data center, you have to have water access 0:08:57.400 --> 0:09:00.440 and things like that. It can't be good ever. 0:09:01.080 --> 0:09:03.640 Oh definitely, we're not saying it's going everywhere. I mean, 0:09:03.880 --> 0:09:06.400 i'd go the opos and say it's really actually bad 0:09:06.440 --> 0:09:08.440 in a lot of places, and then it's really good 0:09:08.440 --> 0:09:11.640 in some places. And so it really depends on all 0:09:11.640 --> 0:09:13.280 the things that you just laid out, which is, do 0:09:13.320 --> 0:09:14.599 you have the generation, do you have the water, do 0:09:14.600 --> 0:09:17.040 you have everything else? What you're seeing now in utilities 0:09:17.280 --> 0:09:21.120 is data center tariffs that are being kind of negotiated 0:09:21.160 --> 0:09:24.760 and going through the utility regulation process today. And we've 0:09:24.760 --> 0:09:28.880 seen some examples in Wisconsin, for instance, where effectively the 0:09:29.000 --> 0:09:31.719 data center has zero impact on the local rate pair. 0:09:32.200 --> 0:09:36.600 The hyperscaler in Wisconsin has agreed to guarantee a return 0:09:37.120 --> 0:09:39.240 on a rate base for the capex that the utility 0:09:39.280 --> 0:09:41.959 is spending. It's not going to impact the rate payers 0:09:42.000 --> 0:09:44.160 there at all, and so it's kind of done off 0:09:44.240 --> 0:09:47.800 of the back of the utility customer. There's other places though, 0:09:47.840 --> 0:09:51.880 where they're still working through those utility contracts or we'll see, 0:09:51.920 --> 0:09:54.520 but hey, you could have big stranded asset risk. Utility 0:09:54.559 --> 0:09:56.360 is going to spend a couple of billion dollars. They're 0:09:56.360 --> 0:09:57.840 going to make sure that the data center has power 0:09:57.840 --> 0:10:00.679 and electricity. Maybe the data center leaves five years from 0:10:00.679 --> 0:10:03.160 now and then everybody's gonna be stuck with a stranded assets. 0:10:03.200 --> 0:10:06.040 So no, definitively take a step back. You know, we 0:10:06.120 --> 0:10:08.240 think the world needs more energy, we think the world 0:10:08.320 --> 0:10:11.520 needs more power. It's gonna service data centers, it's going 0:10:11.559 --> 0:10:15.040 to service industrial customers, residential customers, sort of everything, evs, 0:10:15.480 --> 0:10:17.760 you name it. But that's gonna come with the tension 0:10:17.880 --> 0:10:20.840 of rising bills, and that's going to be a challenge 0:10:20.840 --> 0:10:22.880 for some places and an opportunity for others. 0:10:23.120 --> 0:10:26.199 I'm curious. We'll get into all all these details and stuff, 0:10:26.240 --> 0:10:28.400 but I'm actually I'm very curious about how you work 0:10:28.440 --> 0:10:31.120 and how you figure this stuff out. I have to imagine, 0:10:31.600 --> 0:10:33.480 for as long as you've been working on this, there 0:10:33.559 --> 0:10:37.600 must be new things every day, because, as Tracy mentioned, 0:10:37.880 --> 0:10:40.360 we've it's gone from this sort of like a lot 0:10:40.400 --> 0:10:45.640 of staid, stable operations to high tech and there's so 0:10:45.720 --> 0:10:47.760 much uncertainty. How do you work, Like, how do you 0:10:47.840 --> 0:10:49.720 learn about things? Do you have a team of analysts 0:10:49.720 --> 0:10:52.920 that talk to us about like the process for wrapping 0:10:52.960 --> 0:10:56.000 your heads around so much novelty? Yeah? 0:10:56.040 --> 0:10:57.920 So you know, we've got a great team on our 0:10:57.960 --> 0:11:00.800 infrastructure team. There's four portfolio managers and sort of we 0:11:00.920 --> 0:11:03.040 kind of break the world up by geography. We have 0:11:03.120 --> 0:11:05.280 one PM in London and who helps us with our 0:11:05.400 --> 0:11:08.480 European infrastructure investments, and then three here in New York 0:11:08.520 --> 0:11:11.440 with varying expertise, and then we have seven analysts and 0:11:11.440 --> 0:11:13.600 they're sort of our boots on the ground. I mean. 0:11:13.760 --> 0:11:16.360 Conan Steers was founded as a real estate investor back 0:11:16.360 --> 0:11:18.920 in nineteen eighty six, and our perspective was be on 0:11:18.960 --> 0:11:21.680 the ground, be walking properties, be touring assets, because you 0:11:21.720 --> 0:11:24.560 can find unique insights if you do that sort of thing. 0:11:24.640 --> 0:11:26.920 So we want to have this big team that is 0:11:27.160 --> 0:11:31.360 sector specialists, that really understands the utilities, the regulation behind it, 0:11:31.400 --> 0:11:34.400 what's going on in local politics, going in touring assets, 0:11:34.440 --> 0:11:37.200 talking to local professionals, and trying to find kind of 0:11:37.200 --> 0:11:40.080 where we can see unique insights and where hey, the 0:11:40.120 --> 0:11:42.600 regulation is getting a lot better, or there's this unique 0:11:42.640 --> 0:11:45.320 contract that we think is going to be really beneficial 0:11:45.360 --> 0:11:48.480 to this small local utility, or hey, what's going on 0:11:48.520 --> 0:11:50.560 in New Jersey, what's going on in Virginia? In New 0:11:50.640 --> 0:11:52.880 York City, how's that going to affect things as well? 0:11:53.000 --> 0:11:55.120 And so I think it's important to have this team 0:11:55.280 --> 0:11:58.439 do really detailed fundamental work. And for us as investors, 0:11:58.679 --> 0:12:03.280 I'm our CIO would characterize us as thematically informed relative 0:12:03.320 --> 0:12:06.760 value investors. So let's find good themes that are underappreciated 0:12:06.760 --> 0:12:09.720 and underpriced and then find the best investment opportunities to 0:12:09.720 --> 0:12:11.400 take advantage of those. And if you do that, we 0:12:11.480 --> 0:12:13.600 think you can generate really good investment results. 0:12:14.120 --> 0:12:17.240 My favorite form of self side research remains the analyst 0:12:17.320 --> 0:12:20.720 going on field trips. So now I'm imagining everyone's staring 0:12:20.760 --> 0:12:22.760 at a data center in New Jersey or something. I 0:12:22.760 --> 0:12:25.160 know you're not self side, but speaking of that, though, 0:12:25.360 --> 0:12:28.400 how do deals actually land on your desk? And I 0:12:28.440 --> 0:12:31.600 say that realizing that I'm talking as if someone's like 0:12:31.679 --> 0:12:33.959 mailing out offer letters to you and it's actually landing 0:12:33.960 --> 0:12:36.840 on your desk. How do deals or potential opportunities get 0:12:36.840 --> 0:12:37.480 to your screen? 0:12:37.640 --> 0:12:40.520 So we're public markets investors, so we're just trying to 0:12:40.559 --> 0:12:43.520 find listed securities and figure out which ones we think 0:12:43.559 --> 0:12:45.880 our best position for the next one year, three or 0:12:45.880 --> 0:12:49.320 five years. And so we're constantly invested. So as we 0:12:49.440 --> 0:12:52.080 raise capital via open un neutual funds or through our 0:12:52.080 --> 0:12:54.680 active ETFs, through through separate accounts, it kind of comes 0:12:54.679 --> 0:12:56.880 in and then we have our core strategy that's invested 0:12:56.920 --> 0:12:59.720 at all times. And for us, it's about being positioned 0:12:59.720 --> 0:13:01.719 in a way that we think will do a lot 0:13:01.760 --> 0:13:04.040 better than the benchmarks that we're measured against. And so 0:13:04.360 --> 0:13:07.720 for us, it's sort of your traditional equity research function 0:13:07.880 --> 0:13:10.360 where we are constantly trying to make sure that we 0:13:10.400 --> 0:13:12.960 are leading edge in terms of what's happening in markets 0:13:13.320 --> 0:13:16.320 and identify, Hey, we think that this thing is going 0:13:16.360 --> 0:13:19.360 to happen to the North Dakota utility as they invite 0:13:19.400 --> 0:13:22.640 a local data center customer there. That's underappreciated by the market. 0:13:22.640 --> 0:13:25.840 And so it's the fundamental boots on the ground stuff 0:13:25.840 --> 0:13:28.080 that everybody does, and we just think that we've got 0:13:28.160 --> 0:13:30.960 some unique processes and unique ways to tap it. 0:13:46.920 --> 0:13:50.199 At what point did it sort of dawn on you 0:13:50.400 --> 0:13:53.400 or dawn on the market, et cetera that a lot 0:13:53.400 --> 0:13:56.760 of companies that we had long associated with being sort 0:13:56.760 --> 0:14:00.960 of classically cyclical companies can be t secular winners. Now 0:14:00.960 --> 0:14:03.800 I'm thinking of like a Caterpillar, we should just sort 0:14:03.800 --> 0:14:07.679 of imagine buy and large. Here's a company whose fortunes 0:14:08.120 --> 0:14:11.200 rise and fall with GDP. Right, the economy is growing, well, 0:14:11.400 --> 0:14:13.480 they're probably going to have a lot of people are 0:14:13.480 --> 0:14:15.800 gonna be buying equipment to break ground. You get a recession, 0:14:15.840 --> 0:14:18.520 people buy less of it. And then something changed and 0:14:18.640 --> 0:14:20.840 you look at a chart of like a Caterpillar is like, Okay, 0:14:20.880 --> 0:14:25.160 this is no longer a cyclical company. When did this 0:14:25.240 --> 0:14:27.920 start to like take hold or sort of dawn on people? 0:14:28.240 --> 0:14:29.440 Something was changing. 0:14:29.240 --> 0:14:30.840 Yeah, So I'd start with, so I have kind of 0:14:30.840 --> 0:14:33.560 the dual function where I oversee help oversee our infrastructure 0:14:33.600 --> 0:14:36.280 strategies and our natural resource equity strategies. And I'd say 0:14:36.280 --> 0:14:37.960 on that side of the house, so that's investing in 0:14:38.000 --> 0:14:41.000 things like the entire energy value chain, the metals and 0:14:41.040 --> 0:14:43.960 mining value chain, the ag value chain. You've seen a 0:14:44.000 --> 0:14:46.800 lot more of like the Caterpillar type transitions that you 0:14:46.840 --> 0:14:49.640 just alluded to, which is, hey, this hyper cyclical business 0:14:49.640 --> 0:14:52.440 that suddenly is being valued like it's not a cyclical 0:14:52.480 --> 0:14:56.000 So I'd start with things always have cycles, and so 0:14:56.320 --> 0:14:59.040 it might be perceived as not cyclical now, but maybe 0:14:59.040 --> 0:15:01.360 it will become cyclical again in the future. But our 0:15:01.440 --> 0:15:04.200 view would be, hey, these cycles are actually higher and 0:15:04.240 --> 0:15:06.520 deeper and lasting a lot longer. And one of the 0:15:06.520 --> 0:15:09.640 big drivers has been a lot of the natural resources 0:15:09.640 --> 0:15:12.040 world has been a capital starve for a while, and 0:15:12.160 --> 0:15:15.880 in that process, many sectors and industries have consolidated quite 0:15:15.880 --> 0:15:19.560 a bit, and so the expertise has really accrued to 0:15:19.880 --> 0:15:22.200 just a couple players. And if you think about that 0:15:22.280 --> 0:15:23.960 and you say, hey, one of the things that we 0:15:24.000 --> 0:15:26.960 believe about natural resources is that we've exited what we 0:15:26.960 --> 0:15:29.640 talked about as the era of abundance, and we've entered 0:15:29.680 --> 0:15:32.480 the air of scarcity. We just don't have enough of 0:15:32.520 --> 0:15:35.000 all the stuff that we need for the economy to grow. 0:15:35.440 --> 0:15:39.520 And the companies that actually facilitate ending that scarcity, there's 0:15:39.560 --> 0:15:41.480 just not as many of them, because again, there's been 0:15:41.680 --> 0:15:45.280 massive consolidation in these sectors that we think will be persistent, 0:15:45.360 --> 0:15:47.760 will allow them to earn above average returns, have a 0:15:47.800 --> 0:15:50.120 lot more predictable growth for a long time, and then 0:15:50.160 --> 0:15:52.640 we'll reassess in the future and maybe the competition will 0:15:52.800 --> 0:15:54.720 be invited back and they're going to go back in 0:15:54.760 --> 0:15:57.000 the other way. But we think it's really early in 0:15:57.040 --> 0:15:59.640 a lot of these trends, and the sort of secular 0:15:59.680 --> 0:16:02.280 growth and the reduction in volatility of that growth is 0:16:02.400 --> 0:16:04.200 very different now than it was ten years ago. 0:16:05.320 --> 0:16:08.000 So I take the point about consolidation and that you're 0:16:08.040 --> 0:16:12.120 working on, you know, pretty long timelines. But how do 0:16:12.160 --> 0:16:14.840 you guard against, you know, the possibility that, as with 0:16:15.080 --> 0:16:18.560 everything infrastructure related and energy related, certainly it seems like 0:16:18.560 --> 0:16:21.480 we always end up with overcapacity at some point in 0:16:21.520 --> 0:16:23.840 the cycle. How do you avoid that? 0:16:24.440 --> 0:16:27.880 Can't avoid it? Okay, that will happen, right like on 0:16:27.920 --> 0:16:30.680 the commodity cycle. The cure for low prices, low prices, 0:16:30.680 --> 0:16:32.960 the cure for high prices, high prices. The same thing 0:16:33.000 --> 0:16:37.760 on the infrastructure side. Although infrastructure, again it's generally assets 0:16:37.800 --> 0:16:42.440 that are monopolistic, either by regulation or by competitive dynamic. 0:16:42.880 --> 0:16:45.800 You know, you think about the US freight rails. You 0:16:45.840 --> 0:16:48.960 can't really build a new one, and so the competition 0:16:49.000 --> 0:16:51.480 there is going to come from new technologies like autonomous 0:16:51.520 --> 0:16:54.240 trucks and other things. You think about, things like airports, 0:16:54.320 --> 0:16:57.800 even utilities. I mean, these are local monopolies. So in 0:16:57.800 --> 0:17:00.880 infrastructure that sort of over build, I mean it would 0:17:00.880 --> 0:17:03.200 happen on the power side, and it will happen at 0:17:03.240 --> 0:17:06.359 some point, like what would happened with shale pipelines in 0:17:06.400 --> 0:17:09.199 North America. Right in twenty ten, we thought oil production 0:17:09.359 --> 0:17:11.399 was going to go up a lot. We built a 0:17:11.400 --> 0:17:14.720 lot of pipelines by twenty fifteen, twenty sixteen, and oil 0:17:14.760 --> 0:17:17.159 price has declined. We didn't need all those pipelines in 0:17:17.200 --> 0:17:19.480 the short term. Cause a lot of turmoil. And so 0:17:20.240 --> 0:17:22.600 to answer your question directly, you can't avoid it, but 0:17:22.760 --> 0:17:25.320 we as investors, our job is to try to sidestep it. 0:17:25.440 --> 0:17:28.600 Understand when's the market getting too excessive in terms of 0:17:28.680 --> 0:17:29.840 its expectations. 0:17:30.119 --> 0:17:33.600 Tell us about right now January twenty twenty six, within 0:17:33.720 --> 0:17:38.080 the realm of say US energy and US energy infrastructure. 0:17:38.400 --> 0:17:40.359 We all know the headlines, and we've done a million 0:17:40.440 --> 0:17:43.520 episodes on them. There's so much demand for electricity, all right, 0:17:43.560 --> 0:17:46.359 I get that point. But talk to us specifically about 0:17:46.520 --> 0:17:48.680 what are we seeing right now? What is the math 0:17:48.760 --> 0:17:51.119 that you see out there? And maybe to frame it, like, 0:17:51.200 --> 0:17:55.080 how would this conversation be different even in say January 0:17:55.080 --> 0:17:57.000 twenty twenty four, January twenty twenty five. 0:17:57.080 --> 0:17:59.399 Perfect, So let's actually let's not start with the US. 0:17:59.480 --> 0:18:01.640 Let's start with the okay, because I think it's let's 0:18:01.640 --> 0:18:03.320 start as big as we go and then we can 0:18:03.440 --> 0:18:06.240 drill down a lot of people. For the last like 0:18:06.320 --> 0:18:09.280 six years, when they talked about global energy demand, we 0:18:09.320 --> 0:18:11.119 think they did it the wrong way that they focused 0:18:11.160 --> 0:18:13.800 on the supply side, where they said, hey, the government 0:18:13.840 --> 0:18:16.000 has these targets or we have this sort of goal 0:18:16.080 --> 0:18:19.240 to have global warming be xyz. This is what the 0:18:19.280 --> 0:18:22.200 supply would have to look like to satisfy that world. 0:18:22.240 --> 0:18:25.360 And we said, you know, why don't we start with demand? 0:18:25.600 --> 0:18:29.080 You know, what do we think global energy demand is 0:18:29.119 --> 0:18:31.600 going to be in the next two decades. Then let's 0:18:31.600 --> 0:18:34.000 figure out how we're going to supply it. So global 0:18:34.080 --> 0:18:37.359 energy demand, it's a pretty easy model. It's kind of 0:18:37.400 --> 0:18:39.480 three factors, you know. The first thing that you care 0:18:39.520 --> 0:18:43.240 about is global population growth. All l sql more people, 0:18:43.480 --> 0:18:46.440 more energy is consumed. Not talking oil or cool it's 0:18:46.680 --> 0:18:49.080 energy and aggregate. The second thing that you think about 0:18:49.160 --> 0:18:53.840 is the global economy. Bigger economy, all lseql more energy consumption. 0:18:54.280 --> 0:18:57.120 The third one is pretty tricky, and that's the energy 0:18:57.359 --> 0:19:01.040 intensity of economic growth. That is, hey, how good are 0:19:01.040 --> 0:19:03.480 we at converting an energy input into a unit of 0:19:03.520 --> 0:19:06.160 economic output. So what we did a couple of years 0:19:06.200 --> 0:19:08.040 ago is we said, hey, let's try to predict those 0:19:08.080 --> 0:19:10.680 things in the very long run. The first thing is, hey, 0:19:10.680 --> 0:19:14.840 population growth, we think it's decelerating, but it's still positive. 0:19:14.960 --> 0:19:16.639 So in twenty forty there's going to be a lot 0:19:16.680 --> 0:19:18.480 more people in the world than there were in twenty 0:19:18.520 --> 0:19:21.520 twenty four. Economic growth, we think it's going to slow 0:19:21.600 --> 0:19:23.560 but still be pretty positive. Maybe it used to be 0:19:23.560 --> 0:19:26.040 three percent, now it's two point seven. That means more 0:19:26.160 --> 0:19:29.199 energy demand. And then we said, hey, let's assume we 0:19:29.280 --> 0:19:32.040 get a lot more energy efficient, We're going to be 0:19:32.080 --> 0:19:35.560 a lot better at consuming and converting energy into economic growth. 0:19:35.560 --> 0:19:37.960 And that's a comfortable assumption, you know, two years ago, 0:19:38.080 --> 0:19:42.239