Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
Speaker 1: another episode of The Odd Laws podcast. I'm Joe Wisenthal
Speaker 1: and I'm Tracy Alloway. Tracy, I saw an interesting headline
Speaker 1: this morning, just one good point. I saw a million
Speaker 1: interesting headlines, but one that sort of caught my mind,
Speaker 1: sort of market moving, is that there was this comment
Speaker 1: from Jensen Wong. He was at a conference, the CEES conference,
Speaker 1: and he was talking about how in the future, I
Speaker 1: guess their chips are getting more efficient as chips send
Speaker 1: to do that they may not need as much intense
Speaker 1: cooling infrastructure or cooling equipment for future data centers. And
Speaker 1: a bunch of those like cooling names like train technology.
Speaker 1: They're like really getting clobbered because we know those have
Speaker 1: been like some of the big winners from the AI boom.
Speaker 2: I can hear all the private equity shops that bought
Speaker 2: each back outfit streaming from over here. No, it is
Speaker 2: a really interesting headline, right because you think about this
Speaker 2: as a technology space. AI is technology, but it has
Speaker 2: this huge infrastructure aspect attached to it. Infrastructure investors, from
Speaker 2: what I understand, you know, historically have tended to like
Speaker 2: relatively stable returns. Right, You invest in it because you
Speaker 2: expect this to be a pretty reliable business. But because
Speaker 2: you have infrastructure that is now tied to tech, it
Speaker 2: seems like there's a pretty big risk that like every year,
Speaker 2: every two years or maybe even months now, there's going
Speaker 2: to be some huge tech upgrade that just changes the
Speaker 2: equation entirely.
Speaker 1: This is a good point, Like I think, like the
Speaker 1: first time years and years ago I started hearing about
Speaker 1: infrastructure investing is like, oh, we bought a toll road, right,
Speaker 1: we bought an airport, and airports by and large they
Speaker 1: don't get disrupted very much, or a toll roads, like
Speaker 1: the basic business of some of these things has remained stable.
Speaker 1: But yeah, to your point, especially now that there's such
Speaker 1: a link with tech, they's just like the sort of
Speaker 1: volatility of what's going to win out or what's needed
Speaker 1: seems highly uncertain.
Speaker 3: Yeah.
Speaker 2: And of course the other obvious thing going on at
Speaker 2: the moment is everyone's talking about AI valuations. Is the
Speaker 2: build out getting ahead of itself? And are all these
Speaker 2: companies actually going to be able to generate enough cash
Speaker 2: flow that backs up all this investment spend?
Speaker 1: You know the other thing too, and It's something that
Speaker 1: we've observed, which is if you go back to infrastructure
Speaker 1: investing is not a new thing by any stretch, but
Speaker 1: you go back to the twenty tens, and so much
Speaker 1: of the money that was made then is sort of
Speaker 1: like financial engineering, financial opportunities who had dry powder at
Speaker 1: a time when everyone is broke and so forth. And
Speaker 1: one of the themes that's recurring over and over again
Speaker 1: these days is just like to make money, it feels
Speaker 1: like you really have to get your hands dirty. Physical
Speaker 1: things of all sorts, and physical things have just been
Speaker 1: in our face constantly since COVID, and then it's accelerated
Speaker 1: because of there's so much public money pouring into this,
Speaker 1: so governments around the world really opening up the tabs.
Speaker 1: And then over the weekend we're recording this January sixth,
Speaker 1: by the way, obviously the Maduro News and so then
Speaker 1: there's all of this stuff. It was like, oh, who's
Speaker 1: going to rebuild all of that oil infrastructure if that
Speaker 1: oil is ever going to profitably be tabbed? Like this
Speaker 1: is just sort of the physical world is sort of
Speaker 1: like the story of our time.
Speaker 2: Are people talking about public private partnerships? Yet I feel
Speaker 2: like this is another cyclical thing that just pops up
Speaker 2: every once in a while. I'm going to do let's
Speaker 2: bring in our guests, and while we do that, I'm
Speaker 2: going to do a news trend search to see where
Speaker 2: we are in the public private partnership cycle.
Speaker 1: Yes, let's bring our guests. Well, we really do have
Speaker 1: the perfect guest, lots of experience in this realm. We're
Speaker 1: going to be speaking with Tyler Rosenligd. He's a portfolio
Speaker 1: manager globalisted Infrastructure and natural resource equities at Cohen and Steers.
Speaker 1: So we're going to talk about all this stuff. Tyler,
Speaker 1: thank you so much for coming on Outla, Thanks for
Speaker 1: having me.
Speaker 3: I'm real excited.
Speaker 1: What's your job? What do you do? Why are we
Speaker 1: talking to you? What's going and Steers, Let's let's get
Speaker 1: that out of the Yeah.
Speaker 3: So, Conan Steers were a long only asset manager. We
Speaker 3: primarily invest in real assets and alternative income strategies. So
Speaker 3: we're you know, managing mutual funds and ETFs, active ETFs
Speaker 3: and separate accounts for institutional investors. Focused on a couple
Speaker 3: niche things, primarily real assets strategies here and now. So
Speaker 3: that's things like listed ruts, which were really well known
Speaker 3: for commodities. And then where I help is our global
Speaker 3: listed infrastructure and our natural resource equity strategies. So these
Speaker 3: are long only strategies. Investing across in infrastructure, it's you
Speaker 3: know we call the cute subsectors, so that's communications, things
Speaker 3: like cell towers, data centers, and satellites. Utilities, so this
Speaker 3: is electric, gas, water, renewables, transportation, the toll roads that
Speaker 3: you talked about, toll roads, airports, marine ports, and freight rails.
Speaker 3: And then e energy is misstream pipelines and so forth.
Speaker 3: So we try to look at everything and give investors
Speaker 3: exposure to what is really a dynamic and exciting place.
Speaker 2: So how busy have you been over the past year
Speaker 2: or two.
Speaker 3: It's been very busy. I Mean, my joke used to
Speaker 3: be that I invent and all the old economy stuff.
Speaker 3: Now it's like the new economy stuff, and it's the
Speaker 3: stuff that people are really excited about. And I'd say
Speaker 3: we've seen a lot of these trends kind of coming
Speaker 3: for a long time, and we've talked about them for
Speaker 3: probably a decade, but they've really only surfaced kind of
Speaker 3: to the front page of Bloomberg every morning in the
Speaker 3: last eighteen months, and I think that's really exciting, and
Speaker 3: we've been really busy because there's lots of new opportunities.
Speaker 3: We see investment cases in traditional utilities, tons of new alternatives, nuclear, renewables, pipelines,
Speaker 3: lots of new businesses, capital formation, great opportunities.
Speaker 2: And what's the balance of power actually like between investors
Speaker 2: and the companies that need investment at the moment, because
Speaker 2: I imagine it could go either way right now, Like
Speaker 2: the energy needs for data centers are absolutely massive, so
Speaker 2: it needs tons and tons of capital. But at the
Speaker 2: same time, a lot of investors, as we've been discussing,
Speaker 2: have been very, very eager to identify opportunities and get
Speaker 2: their foot in the door.
Speaker 3: Yeah. I mean in the world that I live in,
Speaker 3: which is the sort of hard asset economy, i'd say
Speaker 3: having capital is very important. But we're now at a
Speaker 3: place in the cycle where the investment needs are so
Speaker 3: big that it's creating pretty big challenges for companies. And
Speaker 3: take the utility sector as an example. Eighteen months ago,
Speaker 3: if you said, hey, utility capex is going to accelerate
Speaker 3: and earnings growth is going to accelerate, every utility investor
Speaker 3: would say that's great. We've gone to such a level
Speaker 3: now that it's actually really nuanced answer. You know, there
Speaker 3: is so much capital required in utility investment today that
Speaker 3: it's really causing affordability problems and some utilities we think
Speaker 3: are really going to struggle because elections are being one
Speaker 3: about utility bills. Other utilities. On the other hand, actually
Speaker 3: you invite data centers into your service territory and it
Speaker 3: lowers bills, and so today, I actually think from an
Speaker 3: active management perspective, the dispersion in terms of outcomes and
Speaker 3: investment opportunities is as wide as it's ever been. So
Speaker 3: that's a really good thing for us as investors, and
Speaker 3: I think it's not going to end. You know, we
Speaker 3: think these are structural, secular trends that are here for
Speaker 3: a while, and we don't think that is a fad.
Speaker 3: From an infrastructure investment perspective, we.
Speaker 1: Just real quickly, data center's lowering bills. Headlines like that
Speaker 1: don't go viral. What's that all about.
Speaker 3: Yeah, it's very nuanced. So if you think about the
Speaker 3: utility business model, you know, very simplistically, the utility invests
Speaker 3: in its rate base. So let's say their rate base
Speaker 3: is ten billion dollars. They're allowed a return on equity,
Speaker 3: maybe it's ten percent. They aren't a billion dollars. This
Speaker 3: is very simple math. Isn't how it exactly works. But
Speaker 3: then they charge their cost to customers, and that's their
Speaker 3: revenue requirement what we as bill payers pay. You double
Speaker 3: your rate base. If you don't increase your customers, you
Speaker 3: could actually double your costs. And that's a lot of
Speaker 3: what's happening here in New York City and Washington, DC
Speaker 3: and other places. There are some utilities that are long
Speaker 3: generation or they're long power. So just think about that
Speaker 3: very simplistically. You've got a utility, it's got a rate base,
Speaker 3: and inside that rate base, every rate payer is paying
Speaker 3: for power that's not actually being used. Bring a data
Speaker 3: center into that service territory. The data center itself might
Speaker 3: consume that power, and you, as the ratepayer, are not
Speaker 3: actually going to be burdened by that cost in your
Speaker 3: monthly bill. And so for us, we think it's really important.
Speaker 3: You've got to understand the regulation, who the commissioners are,
Speaker 3: what their power systems are, like their generation and so forth.
Speaker 3: And there are examples of data centers being really good
Speaker 3: for both the utility and the customer. But that's again,
Speaker 3: it's very nuanced, and it really depends on where you
Speaker 3: are and sort of what your asset base looks like.
Speaker 2: I talk a little bit more about that because we've
Speaker 2: done episodes on the political risks involved with the data
Speaker 2: center build out, and this seems to be something that
Speaker 2: is really gaining traction, especially as we go into the
Speaker 2: midterms and we see politicians sort of, you know, laying
Speaker 2: down their positions on this particular issue. But how feasible
Speaker 2: is it that you could get a data center that
Speaker 2: could actually in some way improve the electricity market in
Speaker 2: a particular state or location. And then I imagine that
Speaker 2: you have to have a lot of room, right to
Speaker 2: have a data center, you have to have water access
Speaker 2: and things like that. It can't be good ever.
Speaker 3: Oh definitely, we're not saying it's going everywhere. I mean,
Speaker 3: i'd go the opos and say it's really actually bad
Speaker 3: in a lot of places, and then it's really good
Speaker 3: in some places. And so it really depends on all
Speaker 3: the things that you just laid out, which is, do
Speaker 3: you have the generation, do you have the water, do
Speaker 3: you have everything else? What you're seeing now in utilities
Speaker 3: is data center tariffs that are being kind of negotiated
Speaker 3: and going through the utility regulation process today. And we've
Speaker 3: seen some examples in Wisconsin, for instance, where effectively the
Speaker 3: data center has zero impact on the local rate pair.
Speaker 3: The hyperscaler in Wisconsin has agreed to guarantee a return
Speaker 3: on a rate base for the capex that the utility
Speaker 3: is spending. It's not going to impact the rate payers
Speaker 3: there at all, and so it's kind of done off
Speaker 3: of the back of the utility customer. There's other places though,
Speaker 3: where they're still working through those utility contracts or we'll see,
Speaker 3: but hey, you could have big stranded asset risk. Utility
Speaker 3: is going to spend a couple of billion dollars. They're
Speaker 3: going to make sure that the data center has power
Speaker 3: and electricity. Maybe the data center leaves five years from
Speaker 3: now and then everybody's gonna be stuck with a stranded assets.
Speaker 3: So no, definitively take a step back. You know, we
Speaker 3: think the world needs more energy, we think the world
Speaker 3: needs more power. It's gonna service data centers, it's going
Speaker 3: to service industrial customers, residential customers, sort of everything, evs,
Speaker 3: you name it. But that's gonna come with the tension
Speaker 3: of rising bills, and that's going to be a challenge
Speaker 3: for some places and an opportunity for others.
Speaker 1: I'm curious. We'll get into all all these details and stuff,
Speaker 1: but I'm actually I'm very curious about how you work
Speaker 1: and how you figure this stuff out. I have to imagine,
Speaker 1: for as long as you've been working on this, there
Speaker 1: must be new things every day, because, as Tracy mentioned,
Speaker 1: we've it's gone from this sort of like a lot
Speaker 1: of staid, stable operations to high tech and there's so
Speaker 1: much uncertainty. How do you work, Like, how do you
Speaker 1: learn about things? Do you have a team of analysts
Speaker 1: that talk to us about like the process for wrapping
Speaker 1: your heads around so much novelty? Yeah?
Speaker 3: So you know, we've got a great team on our
Speaker 3: infrastructure team. There's four portfolio managers and sort of we
Speaker 3: kind of break the world up by geography. We have
Speaker 3: one PM in London and who helps us with our
Speaker 3: European infrastructure investments, and then three here in New York
Speaker 3: with varying expertise, and then we have seven analysts and
Speaker 3: they're sort of our boots on the ground. I mean.
Speaker 3: Conan Steers was founded as a real estate investor back
Speaker 3: in nineteen eighty six, and our perspective was be on
Speaker 3: the ground, be walking properties, be touring assets, because you
Speaker 3: can find unique insights if you do that sort of thing.
Speaker 3: So we want to have this big team that is
Speaker 3: sector specialists, that really understands the utilities, the regulation behind it,
Speaker 3: what's going on in local politics, going in touring assets,
Speaker 3: talking to local professionals, and trying to find kind of
Speaker 3: where we can see unique insights and where hey, the
Speaker 3: regulation is getting a lot better, or there's this unique
Speaker 3: contract that we think is going to be really beneficial
Speaker 3: to this small local utility, or hey, what's going on
Speaker 3: in New Jersey, what's going on in Virginia? In New
Speaker 3: York City, how's that going to affect things as well?
Speaker 3: And so I think it's important to have this team
Speaker 3: do really detailed fundamental work. And for us as investors,
Speaker 3: I'm our CIO would characterize us as thematically informed relative
Speaker 3: value investors. So let's find good themes that are underappreciated
Speaker 3: and underpriced and then find the best investment opportunities to
Speaker 3: take advantage of those. And if you do that, we
Speaker 3: think you can generate really good investment results.
Speaker 2: My favorite form of self side research remains the analyst
Speaker 2: going on field trips. So now I'm imagining everyone's staring
Speaker 2: at a data center in New Jersey or something. I
Speaker 2: know you're not self side, but speaking of that, though,
Speaker 2: how do deals actually land on your desk? And I
Speaker 2: say that realizing that I'm talking as if someone's like
Speaker 2: mailing out offer letters to you and it's actually landing
Speaker 2: on your desk. How do deals or potential opportunities get
Speaker 2: to your screen?
Speaker 3: So we're public markets investors, so we're just trying to
Speaker 3: find listed securities and figure out which ones we think
Speaker 3: our best position for the next one year, three or
Speaker 3: five years. And so we're constantly invested. So as we
Speaker 3: raise capital via open un neutual funds or through our
Speaker 3: active ETFs, through through separate accounts, it kind of comes
Speaker 3: in and then we have our core strategy that's invested
Speaker 3: at all times. And for us, it's about being positioned
Speaker 3: in a way that we think will do a lot
Speaker 3: better than the benchmarks that we're measured against. And so
Speaker 3: for us, it's sort of your traditional equity research function
Speaker 3: where we are constantly trying to make sure that we
Speaker 3: are leading edge in terms of what's happening in markets
Speaker 3: and identify, Hey, we think that this thing is going
Speaker 3: to happen to the North Dakota utility as they invite
Speaker 3: a local data center customer there. That's underappreciated by the market.
Speaker 3: And so it's the fundamental boots on the ground stuff
Speaker 3: that everybody does, and we just think that we've got
Speaker 3: some unique processes and unique ways to tap it.
Speaker 1: At what point did it sort of dawn on you
Speaker 1: or dawn on the market, et cetera that a lot
Speaker 1: of companies that we had long associated with being sort
Speaker 1: of classically cyclical companies can be t secular winners. Now
Speaker 1: I'm thinking of like a Caterpillar, we should just sort
Speaker 1: of imagine buy and large. Here's a company whose fortunes
Speaker 1: rise and fall with GDP. Right, the economy is growing, well,
Speaker 1: they're probably going to have a lot of people are
Speaker 1: gonna be buying equipment to break ground. You get a recession,
Speaker 1: people buy less of it. And then something changed and
Speaker 1: you look at a chart of like a Caterpillar is like, Okay,
Speaker 1: this is no longer a cyclical company. When did this
Speaker 1: start to like take hold or sort of dawn on people?
Speaker 1: Something was changing.
Speaker 3: Yeah, So I'd start with, so I have kind of
Speaker 3: the dual function where I oversee help oversee our infrastructure
Speaker 3: strategies and our natural resource equity strategies. And I'd say
Speaker 3: on that side of the house, so that's investing in
Speaker 3: things like the entire energy value chain, the metals and
Speaker 3: mining value chain, the ag value chain. You've seen a
Speaker 3: lot more of like the Caterpillar type transitions that you
Speaker 3: just alluded to, which is, hey, this hyper cyclical business
Speaker 3: that suddenly is being valued like it's not a cyclical
Speaker 3: So I'd start with things always have cycles, and so
Speaker 3: it might be perceived as not cyclical now, but maybe
Speaker 3: it will become cyclical again in the future. But our
Speaker 3: view would be, hey, these cycles are actually higher and
Speaker 3: deeper and lasting a lot longer. And one of the
Speaker 3: big drivers has been a lot of the natural resources
Speaker 3: world has been a capital starve for a while, and
Speaker 3: in that process, many sectors and industries have consolidated quite
Speaker 3: a bit, and so the expertise has really accrued to
Speaker 3: just a couple players. And if you think about that
Speaker 3: and you say, hey, one of the things that we
Speaker 3: believe about natural resources is that we've exited what we
Speaker 3: talked about as the era of abundance, and we've entered
Speaker 3: the air of scarcity. We just don't have enough of
Speaker 3: all the stuff that we need for the economy to grow.
Speaker 3: And the companies that actually facilitate ending that scarcity, there's
Speaker 3: just not as many of them, because again, there's been
Speaker 3: massive consolidation in these sectors that we think will be persistent,
Speaker 3: will allow them to earn above average returns, have a
Speaker 3: lot more predictable growth for a long time, and then
Speaker 3: we'll reassess in the future and maybe the competition will
Speaker 3: be invited back and they're going to go back in
Speaker 3: the other way. But we think it's really early in
Speaker 3: a lot of these trends, and the sort of secular
Speaker 3: growth and the reduction in volatility of that growth is
Speaker 3: very different now than it was ten years ago.
Speaker 2: So I take the point about consolidation and that you're
Speaker 2: working on, you know, pretty long timelines. But how do
Speaker 2: you guard against, you know, the possibility that, as with
Speaker 2: everything infrastructure related and energy related, certainly it seems like
Speaker 2: we always end up with overcapacity at some point in
Speaker 2: the cycle. How do you avoid that?
Speaker 3: Can't avoid it? Okay, that will happen, right like on
Speaker 3: the commodity cycle. The cure for low prices, low prices,
Speaker 3: the cure for high prices, high prices. The same thing
Speaker 3: on the infrastructure side. Although infrastructure, again it's generally assets
Speaker 3: that are monopolistic, either by regulation or by competitive dynamic.
Speaker 3: You know, you think about the US freight rails. You
Speaker 3: can't really build a new one, and so the competition
Speaker 3: there is going to come from new technologies like autonomous
Speaker 3: trucks and other things. You think about, things like airports,
Speaker 3: even utilities. I mean, these are local monopolies. So in
Speaker 3: infrastructure that sort of over build, I mean it would
Speaker 3: happen on the power side, and it will happen at
Speaker 3: some point, like what would happened with shale pipelines in
Speaker 3: North America. Right in twenty ten, we thought oil production
Speaker 3: was going to go up a lot. We built a
Speaker 3: lot of pipelines by twenty fifteen, twenty sixteen, and oil
Speaker 3: price has declined. We didn't need all those pipelines in
Speaker 3: the short term. Cause a lot of turmoil. And so
Speaker 3: to answer your question directly, you can't avoid it, but
Speaker 3: we as investors, our job is to try to sidestep it.
Speaker 3: Understand when's the market getting too excessive in terms of
Speaker 3: its expectations.
Speaker 1: Tell us about right now January twenty twenty six, within
Speaker 1: the realm of say US energy and US energy infrastructure.
Speaker 1: We all know the headlines, and we've done a million
Speaker 1: episodes on them. There's so much demand for electricity, all right,
Speaker 1: I get that point. But talk to us specifically about
Speaker 1: what are we seeing right now? What is the math
Speaker 1: that you see out there? And maybe to frame it, like,
Speaker 1: how would this conversation be different even in say January
Speaker 1: twenty twenty four, January twenty twenty five.
Speaker 3: Perfect, So let's actually let's not start with the US.
Speaker 3: Let's start with the okay, because I think it's let's
Speaker 3: start as big as we go and then we can
Speaker 3: drill down a lot of people. For the last like
Speaker 3: six years, when they talked about global energy demand, we
Speaker 3: think they did it the wrong way that they focused
Speaker 3: on the supply side, where they said, hey, the government
Speaker 3: has these targets or we have this sort of goal
Speaker 3: to have global warming be xyz. This is what the
Speaker 3: supply would have to look like to satisfy that world.
Speaker 3: And we said, you know, why don't we start with demand?
Speaker 3: You know, what do we think global energy demand is
Speaker 3: going to be in the next two decades. Then let's
Speaker 3: figure out how we're going to supply it. So global
Speaker 3: energy demand, it's a pretty easy model. It's kind of
Speaker 3: three factors, you know. The first thing that you care
Speaker 3: about is global population growth. All l sql more people,
Speaker 3: more energy is consumed. Not talking oil or cool it's
Speaker 3: energy and aggregate. The second thing that you think about
Speaker 3: is the global economy. Bigger economy, all lseql more energy consumption.
Speaker 3: The third one is pretty tricky, and that's the energy
Speaker 3: intensity of economic growth. That is, hey, how good are
Speaker 3: we at converting an energy input into a unit of
Speaker 3: economic output. So what we did a couple of years
Speaker 3: ago is we said, hey, let's try to predict those
Speaker 3: things in the very long run. The first thing is, hey,
Speaker 3: population growth, we think it's decelerating, but it's still positive.
Speaker 3: So in twenty forty there's going to be a lot
Speaker 3: more people in the world than there were in twenty
Speaker 3: twenty four. Economic growth, we think it's going to slow
Speaker 3: but still be pretty positive. Maybe it used to be
Speaker 3: three percent, now it's two point seven. That means more
Speaker 3: energy demand. And then we said, hey, let's assume we
Speaker 3: get a lot more energy efficient, We're going to be
Speaker 3: a lot better at consuming and converting energy into economic growth.
Speaker 3: And that's a comfortable assumption, you know, two years ago,
Speaker 3: because government policy was mandating it, consumer preferences were mandating it,
Speaker 3: and also technologies were getting better. When you put those
Speaker 3: three things together, what you saw was global energy demand
Speaker 3: rising from about one hundred and seventy eight thousand tarawad hours,
Speaker 3: which is you know, big number, but one hundred and
Speaker 3: seventy eight thousand to two hundred and twenty twenty forty.
Speaker 3: That's a big increase in global energy demand. And again
Speaker 3: that assumes a big increase in energy efficiency. So then
Speaker 3: peel back one layer. How does renewables fit into this, Well,
Speaker 3: we also want to reduce coal consumption. So if you
Speaker 3: think about this, hey, we're going from one eighty to
Speaker 3: two twenty. We want to reduce the amount of coal
Speaker 3: we consume. Renewables we need to add sixty thousand tarot
Speaker 3: wet hours or fifty five thousand tariowot hours of supply.
Speaker 3: It's a huge number. That's basically recreating the entire global
Speaker 3: crude oil industry that's been around for one hundred years
Speaker 3: in the next sixteen. So what's changed in the last
Speaker 3: twelve months that global energy demand assumption for twenty forty
Speaker 3: has risen. Our confidence that we're getting less energy intense
Speaker 3: has gone down because a lot of this economic growth
Speaker 3: is very energy intensive, and so we've been in this
Speaker 3: energy addition world, this need to produce really more of everything,
Speaker 3: and it's only becoming more of an issue and a
Speaker 3: challenge and an opportunity for the energy industry.
Speaker 2: Actually reminds me. I wanted to ask you, can you
Speaker 2: talk about the decarbonization initiatives from some of the hyperscalers
Speaker 2: themselves and how you're judging Yeah, yeah, yeah.
Speaker 3: So there's sort of like three competing factors when you're
Speaker 3: thinking about energy. So so one is you want the
Speaker 3: energy system to be stable, You want to be clean,
Speaker 3: and you want more of it. I think five years
Speaker 3: ago it was clean, stable more in that order, we
Speaker 3: want clean energy, we want it to be stable, and
Speaker 3: we want to have more. Today it's it's kind of flipped, right,
Speaker 3: we need more. It has to be stable, and then
Speaker 3: we do want it to be clean, but we can't
Speaker 3: necessarily sacrifice the clean for the more and the stable
Speaker 3: part of it. And so I think everybody is well
Speaker 3: intentioned and doing the right things, which is, Hey, let's
Speaker 3: try to transition the dirtiest stuff away, move from coal
Speaker 3: into natural gas hyper scalers who have a lot of cash.
Speaker 3: Let's try to reindustrialize the nuclear economy. Let's continue to
Speaker 3: make investments in SMRs and existing reactors, turning them on.
Speaker 3: Let's try to get more geothermal and other things in
Speaker 3: the Hey, let's get more of it. Let's make sure
Speaker 3: it's stable, let's make it as clean as possible. And
Speaker 3: then once we've kind of gotten there on the build out,
Speaker 3: we can start to shut down the stuff we don't
Speaker 3: want and really just rely on the stuff that we
Speaker 3: do want. But again, the three factors have changed, and
Speaker 3: I think that that's really shifted market perceptions on what
Speaker 3: the energy industry should look like.
Speaker 1: Have they acknowledged that they've changed or is this just
Speaker 1: a quiet they've changed but we're not getting they're certainly
Speaker 1: not putting press releases about it. But you know, how
Speaker 1: is it just you.
Speaker 3: Know, I think change. I think it's it's actually a
Speaker 3: little bit more acknowledged than people would say out loud,
Speaker 3: Like I get yelled at sometimes when I talk about
Speaker 3: specific stocks. But there's a UK based major energy company
Speaker 3: that you know went one way and then they've very
Speaker 3: publicly gone the other way. Yeah, and I think you
Speaker 3: know that's that's normal when you see sort of market
Speaker 3: conditions shift like.
Speaker 1: This random question the year twenty forty, are we still
Speaker 1: going to be using coal in this country.
Speaker 3: In our model? Our model is global, so this country
Speaker 3: versus the world. Let's just focus on the world. World.
Speaker 3: We have coal supply or sort of coal generation cut
Speaker 3: in half by twenty forty. I think that's ambitious. I
Speaker 3: would hope that it was zero, but the sort of
Speaker 3: energy pragmatists would say, hey, around the world coal will
Speaker 3: be relied upon for a really long time. It will
Speaker 3: be a much lower percentage of energy markets, and we
Speaker 3: think it will sort of decline over time. But again,
Speaker 3: the idea of zero coal around the world by twenty forty,
Speaker 3: I think is highly unlikely.
Speaker 2: Since we're talking about energy on a global scale. Talk
Speaker 2: to us about what you're seeing or expecting out of China,
Speaker 2: because this is the other source of a million headlines nowadays,
Speaker 2: or at least a million headlines with very very large
Speaker 2: numbers in them about what China is doing in terms
Speaker 2: of building out its energy capacity. Yeah.
Speaker 3: I think part of it is you think about the
Speaker 3: global geopolitics and you say, like, well, why are some
Speaker 3: places more aggressively pursuing alternatives versus traditional and why did
Speaker 3: Europe do as much renewables as they did, And a
Speaker 3: lot of that has to do with taking advantage of
Speaker 3: what you're endowed with or not. So Here in North
Speaker 3: America we have plentiful natural gas and crude oil, and
Speaker 3: our need to invest in renewables from a cost perspective
Speaker 3: is different than Europe, where they are an importer, and
Speaker 3: so the way to sort of convert from being an
Speaker 3: importer to self sufficient is to harness what you've got.
Speaker 3: If you've got a lot of wind and you've got
Speaker 3: a lot of sun, you're going to want to overinvest there.
Speaker 3: I think China depends on the world for energy supply
Speaker 3: and they're trying to reduce that and I want to
Speaker 3: be more independent. They're going all in on nuclear, They're
Speaker 3: investing massive amounts in their nuclear economy, cold generation as well,
Speaker 3: kind of everything, and I think just an effort to
Speaker 3: be more self sufficient. But that's not China specific, right,
Speaker 3: that's kind of like every country right now is doing
Speaker 3: a similar thing. And trying to be a little bit
Speaker 3: more self sufficient in a post COVID, post Russia Ukraine,
Speaker 3: rising geopolitical tension sort of world.
Speaker 1: I think I'm very skeptical that we're going to have
Speaker 1: a nuclear renaissance in the US. Like, I know, there's
Speaker 1: tons of headlines and I'm sure there's a few of
Speaker 1: those places that are going to get restarted. I am
Speaker 1: not an expert, so it's it's just my gut. Is
Speaker 1: am I off the mark? Were we looking on that?
Speaker 2: So?
Speaker 3: I think it really depends on what you mean by
Speaker 3: a nuclear renaissance.
Speaker 2: So give us a time frame, get.
Speaker 1: Like, okay, here's my I don't even why am I
Speaker 1: making predictions. I don't know anything about this stuff, but
Speaker 1: like I would be surprised if I'm on polymarket or something.
Speaker 1: I would imagine that there's not what's that plant in
Speaker 1: Georgia that came online, the vogal, the vulgal plant, Like,
Speaker 1: I don't think there's going to be another Vocal in
Speaker 1: the next twenty years.
Speaker 3: I disagree. I'll kind of talk you through why, But
Speaker 3: let me let me tell you about what the nuclear renaissance.
Speaker 3: And again I'm talking kind of global as opposed to
Speaker 3: just us, but we can definitely talk about US two.
Speaker 3: So take another step. I like to take a lot
Speaker 3: of step backs.
Speaker 1: As you can tell, we're going to talk about the galaxy.
Speaker 3: Go no data centers in space in this conversation, I
Speaker 3: promise no.
Speaker 1: Actually that.
Speaker 3: Yeah, okay, So why why are we talking about nuclear? Right?
Speaker 3: It's pretty simple, break the world into traditional and alternative.
Speaker 3: Good thing about traditional, so things like natural gas and
Speaker 3: coal is it's reliable twenty four to seven three sixty
Speaker 3: five energy. Unfortunately, it has the emissions profile we don't like.
Speaker 3: Alternatives let's just call it wind and solar has the
Speaker 3: emissions profile we want, but it's intermittent and variable. If
Speaker 3: you're a data center CEO, you're feeling pretty good about
Speaker 3: your business today, you kind of wake up with night
Speaker 3: sweats about the power going out. Right, you cannot lose power.
Speaker 3: You have a very expensive metal shell that's cooling servers
Speaker 3: and providing electricity and energy, which means, hey, I can't
Speaker 3: take the intermittency. I've got to use the baseload. Nuclear
Speaker 3: is sort of the one resource that can kind of
Speaker 3: serve both masters. It is twenty four to seven three
Speaker 3: sixty five low, variable cost, very high capacity factor and
Speaker 3: it's also pretty clean, and so that's kind of why
Speaker 3: we're talking about nuclear. There was an episode of maybe
Speaker 3: a couple months ago where you said, hey, nuclear batteries.
Speaker 2: Yeah, I was about to ask you the same question.
Speaker 3: Well, go, I think I mean it's all about energy storage. Yeah.
Speaker 3: The whole thing is like, hey, how do I store
Speaker 3: energy to use it when I want it? Like coal
Speaker 3: is effectively an energy battery, natural gas is an energy battery.
Speaker 3: There's just no batteries for wind and solar that are
Speaker 3: viable today. But I'd love to solve that problem. That
Speaker 3: would help in a lot of ways.
Speaker 2: But back to the nuclear can hold solar energy in
Speaker 2: your hand?
Speaker 3: Can't? I wish you could and me, well, one day
Speaker 3: you will, but but we think it's going to take
Speaker 3: quite a while to do that. But okay, so the
Speaker 3: nuclear renaissance, we've been shutting down nuclear generation capacity around
Speaker 3: the world for the last two decades.
Speaker 1: So step one is including in famously sunny Germany everywhere.
Speaker 3: So step one is like, let's just not shut it down.
Speaker 3: We think we're in like the seventh inning of that
Speaker 3: ball game, Like we're not shutting it down.
Speaker 1: Yea, it's something yeah.
Speaker 3: So so phase two is like, well, can we turn
Speaker 3: on any of the stuff that we recently turned off?
Speaker 3: You know, we're in like the fifth inning of that game.
Speaker 3: I think that sort of is going from a slow
Speaker 3: bleed to hey flat and then slow growth. So the
Speaker 3: next couple of years are about hey turning on three
Speaker 3: mile Islan in other places, Phase three, which would be
Speaker 3: I think we're in the second and third inning and
Speaker 3: we're going to start to see some acceleration. Here would
Speaker 3: be the sort of brown field inside the fence nuclear
Speaker 3: facility build out. Hey, you worry about nimby issues, site supply,
Speaker 3: security safety. I think that's been talked about here as well.
Speaker 3: We do think that that's going to start to pick up,
Speaker 3: but that's like a twenty thirty two to twenty thirty
Speaker 3: five in service and then we talk about SMRs and
Speaker 3: thorium and other opportunities. I think that'll happen, but it's
Speaker 3: like twenty thirty five to twenty forty. So that's still
Speaker 3: a renaissance to me. Were we're taking something that we
Speaker 3: were sort of allowing to slowly melt and we're sort
Speaker 3: of refreezing it and then we're building it. And that's
Speaker 3: that's okay, just yes or no.
Speaker 1: By the year twenty forty in the United States, will
Speaker 1: we see you.
Speaker 2: Guys are going to start a polymarket contract.
Speaker 1: Yeah, it will.
Speaker 3: We get another vote, so ill I've got this like
Speaker 3: internal bet, so I have to say yes. But there
Speaker 3: is a caveat no utility will do it themselves. Yeah,
Speaker 3: there is I'd say zero chance that a utility will say, hey,
Speaker 3: we're willing to do a greenfield new nuclear facility with
Speaker 3: no cost overrun risk. But I think the cost over
Speaker 3: run risk will get covered by the government. So we're
Speaker 3: starting to see some of this stuff. We're seeing it
Speaker 3: across the natural resources economy right where the US government
Speaker 3: is taking direct equity stakes and they're having a more
Speaker 3: directly interventionist approach to all of critical minerals and resources.
Speaker 3: So what would I do if I was sort of
Speaker 3: the energies are I would say, Hey, I'm the US government.
Speaker 3: I'm going to backstop guarantee cost over run risk for
Speaker 3: ten nuclear generation facilities across the US. I'm going to
Speaker 3: make sure they get built. I'm going to sort of
Speaker 3: shoulder the excess cost burden, and then maybe at the
Speaker 3: end of this, I'm just going to sell it to
Speaker 3: the highest bidder. So let's just make up the numbers.
Speaker 3: Maybe it costs one hundred billion dollars for the US
Speaker 3: government to do that. Maybe those ten facilities get sold
Speaker 3: for fifty billion dollars and the taxpayer has taken a
Speaker 3: fifty billion dollar loss. But here we've got ten new
Speaker 3: generators providing sort of cheap and clean energy. Maybe they
Speaker 3: can sell it for one hundred and fifty and actually
Speaker 3: sort of help the deficit situation. But so get to
Speaker 3: answer a question. I think it's going to happen, But
Speaker 3: I mean one of my key messages, it's not going
Speaker 3: to happen alone. Like these supply chains are not going
Speaker 3: to come about because of market forces. You're not seeing
Speaker 3: a reaction in copper production, you're not seeing a reaction
Speaker 3: in uranium mining, You're not seeing a reaction. Nuclear generation
Speaker 3: without direct government sort of intervention has a little bit
Speaker 3: of a negative connotation, but direct government catalyst, you know.
Speaker 3: And but I think that that's going to happen, and
Speaker 3: we're starting to see it.
Speaker 2: This reminds me. I did pull up the chart of
Speaker 2: the number of times public and private partnerships are being
Speaker 2: mentioned in news stories, and yeah, spiking into late twenty
Speaker 2: twenty four and twenty five. So we're back. But okay,
Speaker 2: talk to us a little bit more. Why doesn't the
Speaker 2: market it like signal work for something like uranium or
Speaker 2: you mentioned copper as well.
Speaker 3: Yeah, I think honestly, these are sort of markets that
Speaker 3: have been sort of forgotten by investors, and companies are
Speaker 3: still being penalized for increasing capex and increasing supply.
Speaker 2: So it's kind of the shale story, the shale stories.
Speaker 3: So you look at sort of at the end of
Speaker 3: last year, some of the major mining companies talked about
Speaker 3: their twenty twenty six capex. Most of them sort of
Speaker 3: cut capex expectations or at least relative to consensus came
Speaker 3: in below. That's weird, right, Copper prices all time highs,
Speaker 3: Goal prices all time highs. Shouldn't the miners be increasing
Speaker 3: their capac and inviting that supply response we talked about earlier.
Speaker 3: The investors just revolt, They say.
Speaker 2: No, Mas, we want the discipline.
Speaker 3: You've destroyed so much value, and they did, right, Shale
Speaker 3: destroyed a lot of value twenty ten to twenty twenty,
Speaker 3: and so it's not going to happen naturally. And maybe
Speaker 3: that's okay because you know, these these management teams, I mean,
Speaker 3: they should continue to be held to the discipline. But
Speaker 3: we do need the supply, and so that's why I
Speaker 3: think that the government is going to try to get
Speaker 3: it moving. And we've seen examples of that, right, you
Speaker 3: saw some rare earth stuff last year, lithium stuff last year.
Speaker 3: Obviously the big nuclear backstop of contracts and so forth
Speaker 3: that was announced in the A lot of it is
Speaker 3: not well defined, but we're going to start to get
Speaker 3: some more definition behind this stuff.
Speaker 1: You can't blame the shareholders. I mean, it must be
Speaker 1: so sick you have these prices shooting through the moon.
Speaker 1: It's like, why not just take the cash?
Speaker 3: You know, I mean as a long term oriented as
Speaker 3: a shareholder, as a shareholder, you know, I think, listen
Speaker 3: at these prices. Returns on a lot of projects actually
Speaker 3: look pretty good, but you worry about administration changes and
Speaker 3: you worry about the supply response. And honestly, these companies
Speaker 3: did really poorly for a long time, and so the
Speaker 3: spreadsheet math might say, hey, you start drilling again, but
Speaker 3: the sort of history would say no, no, the returns need
Speaker 3: to be way better to justify that, and I think
Speaker 3: it's a rational response by the investor base. But I
Speaker 3: think step one is, like people need to start looking
Speaker 3: at the again, the old economy stuff again, but it's
Speaker 3: the new economy stuff. People need to be looking at
Speaker 3: natural resources stocks, they need to be looking at infrastructure stocks.
Speaker 3: They need to be feeling good about them providing capital
Speaker 3: to these companies, and then you will get that supply response.
Speaker 3: But again it's early in.
Speaker 2: The cycle on the topic of natural resources and maybe
Speaker 2: investor reluctance. We're recording this on January sixth, and the
Speaker 2: big news in the markets is, of course, what happened
Speaker 2: over the weekend in Venezuela. I'm sure that's not your
Speaker 2: particular area of expertise, but you know, as an infrastructure investor,
Speaker 2: when you look at a place like Venezuela, where we
Speaker 2: hear they need billions of dollars of capital, yeah, to
Speaker 2: get the oil industry up and running, what do you
Speaker 2: think about that situation?
Speaker 3: Yeah, So let me just talk about it strictly from
Speaker 3: like an investor perspective or how you would sort of
Speaker 3: think about that. Being an infrastructure investor, we care a
Speaker 3: lot about one risk that very few people spend a
Speaker 3: lot of time on So if you're to say, hey, Tyler,
Speaker 3: you talked about the data center CEO staying up a
Speaker 3: knife for losing power. What keeps you up at night?
Speaker 3: For us, it's regulatory risk. Right, you're investing in airports
Speaker 3: and utilities and things like that that are governed by
Speaker 3: a regulator. We worry about surprise, and you get regulatory
Speaker 3: surprise here. Right. You look at what happens with utilities
Speaker 3: in Illinois, you look at what's happening with FURK and
Speaker 3: as they sort of change things. So we spend a
Speaker 3: lot of time on I.
Speaker 1: Don't know anything about utilities in Illinois.
Speaker 3: Well, like, hey, the utilities spend some CAPEX and they said, hey,
Speaker 3: we want a high return, we want to get that
Speaker 3: in our rate base, and the regulator just says no,
Speaker 3: you know, And so we talk about our boots on
Speaker 3: the ground investing. It's trying to make sure that we
Speaker 3: understand those very difficult things to figure out before everybody
Speaker 3: else does. So take it to Venezuela, Like if I
Speaker 3: was to make a large foreign direct investment there from
Speaker 3: an infrastructure and resources perspective, I would really really want
Speaker 3: to understand the legal constructs surrounding that and that's really
Speaker 3: challenging in the midst of regime change, and so I'm
Speaker 3: very hopeful, like I think everybody would say, hey, we're
Speaker 3: hopeful that things get resolved quickly and then you sort
Speaker 3: of figure it all out very fast. But it's going
Speaker 3: to take a while, I think before you actually start
Speaker 3: to see some investments because you, as an infrastructure investor,
Speaker 3: that risk of expropriation nationalization is very high, and so
Speaker 3: you don't want to go and suddenly see your assets
Speaker 3: stranded there. So maybe that answers your question, But again,
Speaker 3: a lot of it is about understanding regulation and law
Speaker 3: and what's happening in politics and so forth.
Speaker 1: Well, I'm mostly curious. I mean, we had President Trump
Speaker 1: is obviously very excited about the opportunities to rebuild that
Speaker 1: infrastructure and for American companies to come in and be
Speaker 1: part of that. But Oil West Texas it said fifty
Speaker 1: seven dollars a barrel, setting aside the obvious highly uncertain
Speaker 1: regulatory environment of Venezuela. Don't know what like pencils out
Speaker 1: at fifty seven. I'm curious. You know, you mentioned pipelines
Speaker 1: like during the twenty tens or sort of you know,
Speaker 1: there's a lot of anti pipeline politics, and I assume
Speaker 1: that the current administration is much more you know, green
Speaker 1: light for pipelines. But who wants to build new pipelines
Speaker 1: at these prices?
Speaker 3: Yeah, so I'll use my favorite acronym, but I've got
Speaker 3: to give credit to Paul Sankie at Sankey Research because
Speaker 3: he's the one that coined it. But so a decade ago,
Speaker 3: we had a Nimbi world, which is like not in
Speaker 3: my backyard. That world transitioned to a bananas world. Bananas
Speaker 3: has built absolutely nothing anywhere near anything, right, So the
Speaker 3: bananas world existed from like twenty eighteen to twenty twenty four.
Speaker 3: And when I say banana's world, that's about the ability
Speaker 3: to build infrastructure. Okay, not any other bananas out there.
Speaker 2: Right.
Speaker 3: That does feel like it's changing a little bit in that, Hey,
Speaker 3: there's starting to be a little bit more sort of
Speaker 3: certainty and sort of based in DC desire to build stuff.
Speaker 3: And so you're starting to see a little bit of
Speaker 3: pipeline construction activity heating back up. We went from a
Speaker 3: world where, hey, we're never going to build another pipeline
Speaker 3: in North America. I think that's changing. It's going to
Speaker 3: be a get a lot more pragmatic than it was
Speaker 3: in twenty ten to twenty fifteen. But you're starting to
Speaker 3: see this sort of willingness to make these investments. But
Speaker 3: again it comes because the sort of.
Speaker 1: Did a math out, like what pipeline is economical at
Speaker 1: current price?
Speaker 3: It's all a function of what the customers wi want
Speaker 3: to pay, right and if you've got natural gas prices
Speaker 3: in the high threes, and if you've got sort of
Speaker 3: wide or oil differentials and other things like a lot
Speaker 3: of the pipeline activity that we're seeing today is natural
Speaker 3: gas pipelines feeding the data centers their willingness to pay
Speaker 3: us pretty high. And so that's really where we're It's
Speaker 3: not an oil pipeline world today. It's a it's a
Speaker 3: natural gas pipeline world.
Speaker 2: We go from we have no bananas to yes, we
Speaker 2: have no bananas.
Speaker 1: I love that, Please enjoy it.
Speaker 2: Please enjoy my nineteen twenties cultural references.
Speaker 1: Going back to US energy and electricity, again, every headline
Speaker 1: or everyone person is like, you know, we have the chips,
Speaker 1: we have the CEA Energy is the bottle deck. You
Speaker 1: hear that over and over again, and I think Jensen
Speaker 1: long said that again today and that CS energy is
Speaker 1: the bottom night. Except we all know this, right, So
Speaker 1: in my mind it's like, oh, it's all priced in.
Speaker 1: But like, as an investor, what parts of this energy
Speaker 1: story to you still feel underappreciated or where are there's
Speaker 1: still opportunities in a story where there's like literally anyone
Speaker 1: is aware of this fact the electricity constraints.
Speaker 3: Yeah, So i'd start with we agree electricity is constrained,
Speaker 3: the demand is going to keep rising. I would note
Speaker 3: it's not just data centers. Like, we spent a lot
Speaker 3: of time thinking about US energy markets, and they went
Speaker 3: from zero growth in terms of electricity demand from twentousy
Speaker 3: and seven to twenty twenty. They've been growing like one
Speaker 3: and one and a half percent recently, we think it's
Speaker 3: going to go to two and a half percent per year.
Speaker 3: Doesn't seem like a big number, but going from zero
Speaker 3: percent to two and a half percent and a big
Speaker 3: industrial system is a huge one. Only about half of
Speaker 3: it is data centers. There's lots of electricity demand coming
Speaker 3: from evs and from the industrial system and so forth.
Speaker 3: But where do we see the opportunity I'd start with
Speaker 3: certain utilities. So utilities today actually trade at a lower
Speaker 3: multiple than they did a few years ago, and growth
Speaker 3: rates are a little bit higher than they used to be,
Speaker 3: So that's like a little bit of an odd thing
Speaker 3: to see. However, what we think is, hey, the average
Speaker 3: utility is going to see some challenges from affordability issues
Speaker 3: and from regulation, but the best utilities are not trading
Speaker 3: at a lot higher multiple than the average utility, and
Speaker 3: their growth rate differential is way better. So to put
Speaker 3: some numbers around it, eight years ago, you had to
Speaker 3: pay an eleven percent premium to get one percent better growth.
Speaker 3: So the average utility group was going to grow six
Speaker 3: best in class utility was going to grow seven. You
Speaker 3: had to pay an eleven percent higher multiple for that trade. Today,
Speaker 3: the fastest growing utilities only trade six percent more expensive,
Speaker 3: so actually cheaper relative to the average. They're going to
Speaker 3: grow two percent more so instead of six and a half,
Speaker 3: it's going to be eight and a half. That's pretty right.
Speaker 3: You're paying lower absolut multiples.
Speaker 1: Theory.
Speaker 3: I think people are worried about regulation. I think people
Speaker 3: are worried about rising interest rates, They're worried about affordability,
Speaker 3: and what you're going to see is the pack will
Speaker 3: separate over the next three years. So it's rational that
Speaker 3: sort of the world has compressed in the way that
Speaker 3: it has from a utility perspective. But I think over time,
Speaker 3: those that are able to execute will really be rewarded.
Speaker 3: Outside that, I mean the picks and shovels types of
Speaker 3: companies to the data center and reindustrialization build out, we
Speaker 3: still see a lot of opportunity and multiples are up,
Speaker 3: but they're becoming more predictable. Their growth rates are accelerating.
Speaker 3: It's more structural in nature.
Speaker 1: Who are some of those companies. Yeah, I measured Caterpillar,
Speaker 1: but that's like.
Speaker 3: Yeah, I mean the engineering and construction companies that are
Speaker 3: helped building the large scale infrastructure and so forth would
Speaker 3: definitely fall in that bucket. Yet we look at some
Speaker 3: of the companies that are like aluminum smelters and so forth. Again,
Speaker 3: these are highly consolidated industries relative to where they were
Speaker 3: a couple decades ago. And so this is like it's
Speaker 3: the gold rush. Who made all the money and the
Speaker 3: gold rush it was the Levi's and the picks and
Speaker 3: shovels companies, And I kind of think that's where we are.
Speaker 3: You might get the best, like absolute returns and some
Speaker 3: of the direct ways to play this, but they might
Speaker 3: come with a lot more volatility, and we think the
Speaker 3: sort of at least risk adjusted returns are more in
Speaker 3: the picks and shovels.
Speaker 2: Speaking of volatility very quickly, one of the interesting things
Speaker 2: that happened last year in data center world was we
Speaker 2: had that big outage at the CME, which was the
Speaker 2: result of an outage at one particular data center that
Speaker 2: was run by an operator called I want to say,
Speaker 2: cyrus one. Yeah, yeah, you know, you talked about the
Speaker 2: CEO staying up late at night worrying about exactly this scenario.
Speaker 2: But do you, as an investor in the infrastructure have
Speaker 2: to worry about operational risk as well? And then how
Speaker 2: do you actually assess that?
Speaker 3: Yeah, we do. I mean, let's use pipelines as like
Speaker 3: the best example. Right, if you own a company that
Speaker 3: owns oil pipelines and they have an oil spill, like
Speaker 3: that is a big problem. So so we get a
Speaker 3: lot of questions on hey, how do you think about
Speaker 3: ESG and integrate ESG and so forth. And one of
Speaker 3: the key things that we do is we think about
Speaker 3: the incentives and we think about how these companies are
Speaker 3: doing maintaining their assets, and what their local shareholder relationships
Speaker 3: are like, and what the integrity of what they own
Speaker 3: and operate are because yeah, with infrastructure, operational risks have
Speaker 3: major asset impairment risks with them. And so again for us,
Speaker 3: it's this big team around the world trying to do
Speaker 3: what we can to talk to not the CEO, but
Speaker 3: the plant managers and the sort of next rung down
Speaker 3: and ask one CEO what he thinks about the assets
Speaker 3: of another company and are they maintaining them well, and
Speaker 3: try to get some insights there, because yeah, it's a
Speaker 3: key risk, something that that we worry about.
Speaker 1: So we're kind of in a post banana world in
Speaker 1: the sense that from the DC perspective, you know, I
Speaker 1: think the administration clearly has a much more liberal attitude
Speaker 1: towards approving various things. On the other hand, and we've
Speaker 1: talked about this recently on the show quite a bit,
Speaker 1: the local backlash, particularly to data center Suddenly people are
Speaker 1: really anxious about that. We see these town hall meetings
Speaker 1: going viral and there's misinformation of out there. Something when
Speaker 1: you think about like the utilities that are the rapidly
Speaker 1: growing ones, the ones for whom there's perhaps an opportunity
Speaker 1: because they don't trade at a premium that is consistent
Speaker 1: with their growth potential. Do you worry about that aspect
Speaker 1: and do much time thinking about like, yes, on paper,
Speaker 1: we know there's tons of plans to build more here,
Speaker 1: et cetera, But will it actually happen given the realities
Speaker 1: of local politics.
Speaker 3: Yeah, I mean i'd start with there's been a lot
Speaker 3: of data center backlash and is it appropriate or not?
Speaker 3: I mean there are some utilities whose bills went up
Speaker 3: fifteen percent last year. Yeah, So and you think about
Speaker 3: a data center company that doesn't create any jobs in
Speaker 3: the local market. I mean there's construction jobs, but then
Speaker 3: once the data center's running, it's just kind of like
Speaker 3: a big empty shell with some refrigeration and some power,
Speaker 3: and you're not really doing a lot for the local economy.
Speaker 3: So you're sort of local residential customer who's paying fifteen
Speaker 3: percent more and it's not seeing any sort of economic
Speaker 3: benefit to the local area from that. That is inviting
Speaker 3: a re ale response from the regulator to say, hey,
Speaker 3: we actually it's not in our best interest to do this,
Speaker 3: And so we spend a lot of time on who
Speaker 3: is on the utility commissions. Are they elected or they appointed?
Speaker 3: Because because that can matter what has been the bill pressure.
Speaker 1: I take it the elected ones are more sensitive towards.
Speaker 3: All LSEQL unelected commission. You're saying, hey, they want to
Speaker 3: stay elected, and so are they're going to do things
Speaker 3: that are more beneficial to the local electorate than someone
Speaker 3: that's government appointed or governor appointed, who would maybe do
Speaker 3: something that's Hey, I know the bills might go up
Speaker 3: a little bit, but but we actually want to invite this.
Speaker 3: I mean, just to put the magnitude of the opportunity.
Speaker 3: So there's a utility in the Midwest. It's been around
Speaker 3: for about one hundred years. It currently has a system
Speaker 3: that's about eleven gigawatts, So one gigawott is about a
Speaker 3: million people. It's like the city of Denver. So this
Speaker 3: Midwest utility eleven gigawatts took them one hundred years to
Speaker 3: get there. They currently have data center demand to build
Speaker 3: fifteen gigawots. Think about that, right one hundred years ago?
Speaker 1: The quest today and I want to looked as up.
Speaker 1: What utility can I.
Speaker 3: Get yelled at?
Speaker 1: By fine, we'll look at up, We'll look at it.
Speaker 3: We'll get up separately.
Speaker 2: Well, use data powered AI platforms to figure it out.
Speaker 3: Yeah, something. They'll kick me out of the table if
Speaker 3: I give too many specific stocks. But no, you just
Speaker 3: think about that right, one hundred years ago to eleven
Speaker 3: and like by tomorrow they want another fifteen that is
Speaker 3: really expensive, and so you're seeing this tension and I
Speaker 3: think that's that's reasonable.
Speaker 2: Do you play power Grid ever? Do you know that game?
Speaker 3: No? But I feel like I should.
Speaker 2: It's a board game. It's a board game where you're
Speaker 2: in charge of supplying electricity to various cities. It's kind
Speaker 2: of fun.
Speaker 3: I played the board game Pandemic in like late nineteen
Speaker 3: and look what that led to. So maybe I'm a
Speaker 3: little bit scary.
Speaker 2: It's your fault. Well play power Grid and then we
Speaker 2: can all enjoy an efficient electricity system. Maybe maybe things
Speaker 2: will change.
Speaker 1: That was a great conversation, Tyler Rosenlick, Thank you so
Speaker 1: much for coming on odd lot. So let's stay in touch.
Speaker 1: Now we're going to use our AI skills to backwards
Speaker 1: figure out what that one hundred years.
Speaker 2: To draw energy from the data centers, to crunch the numbers.
Speaker 1: Crunch the numbers, claw or whatever. Yeah, Tracy, I really
Speaker 1: enjoyed that. It does feel as though if you're in
Speaker 1: the right place right now, there's just a mountain of
Speaker 1: money coming. I mean, who knows if you're like going
Speaker 1: to get it. But you know, between all of them,
Speaker 1: he talked about every country wanting to have more domestic
Speaker 1: energy security, the secular trends, et cetera. If you're in
Speaker 1: the right place, government spending more money, it feels like
Speaker 1: you could get you stand in the right way of
Speaker 1: an absolute fire hose of money right now in this space.
Speaker 2: I mean it feels to me, and you know, he
Speaker 2: kind of said it, but the government is the key risk,
Speaker 2: the regulatory risk. And also I take his point about
Speaker 2: even though maybe the numbers pencil out at current commodity levels,
Speaker 2: if you look at future demand and stuff like that,
Speaker 2: it might not work because your assumption is, well, you know,
Speaker 2: in three years will have a new administration, yeah, or
Speaker 2: maybe in another ten years the pendulum will swing back
Speaker 2: towards clean energy or something like that. So that to
Speaker 2: me seems to be the big risk.
Speaker 1: Just on the Venezuela point, I mean, it's gonna be
Speaker 1: a hard sell. I mean, imagine, who wants to plony
Speaker 1: up one hundred billion dollars and granted shared between a
Speaker 1: bunch of different companies. Presumably it's still the same old
Speaker 1: regime there hasn't been, you know, and then all the
Speaker 1: uncertainty there and then the fact that you know, oil
Speaker 1: just isn't as valuable as it was several years.
Speaker 2: Who are the brave cell side analysts that are going
Speaker 2: to go on a field chirp to Venezuela in order
Speaker 2: to inform their research on time like PDVSA bonds or something.
Speaker 1: Yeah, definitely need we need a sell side report, like
Speaker 1: because the thing that's fun about the reports that you
Speaker 1: like is they often take a lot of pictures. Oh yeah,
Speaker 1: so we need someone to do report, like go into
Speaker 1: the paveous facilities, like just someone takes a thousand photographs
Speaker 1: of like here is the state of this product, this facility.
Speaker 2: This spot goes an oil tanker being loaded up in
Speaker 2: Venezuela and tell us everything that you see.
Speaker 1: How is it, how efficient is it, and so forth,
Speaker 1: what it would actually take to repair.
Speaker 2: It to I feel like I need to add a
Speaker 2: disclaimer onto that. Please do not go to Venezuela and
Speaker 2: do all this on our account. On our account, No,
Speaker 2: we're not asking anyone to go to Venezuela.
Speaker 1: We're asking someone in a professional capacity to whose job
Speaker 1: would be to go there anyway, to please include a
Speaker 1: lot of pictures in the cell side report. But we're
Speaker 1: not asking you to do it on our behalf.
Speaker 2: Is that big enough cavea? Are we going to get
Speaker 2: the lawyers?
Speaker 1: We got to reverse engineer what that utility company is
Speaker 1: in the Midwest, because those numbers are staggering. I mean
Speaker 1: the fact that what is it eleven gigles? By the way,
Speaker 1: can I on the side here, yeah, energy math, I
Speaker 1: have the hardest time wrapping my hedge around.
Speaker 2: I was thinking that like measuring one gigawat as like
Speaker 2: powering Denver was actually a really really useful.
Speaker 1: Except the prom is already I always forget that. But okay,
Speaker 1: one giglet denver, one gign.
Speaker 2: Just tattoo it onto your arm, Joe, because you know
Speaker 2: that's a useful fact that you're probably going to be
Speaker 2: referencing for many years.
Speaker 3: TI.
Speaker 1: And then a gigle WoT is different than a gigwatt hour,
Speaker 1: and so these are like separate things and so forth.
Speaker 1: But the idea that here one hundred years took them
Speaker 1: took them one hundred years to get to eleven gigawads,
Speaker 1: and now they're projecting fifteen gigawads. More staggering, staggering numbers.
Speaker 1: And I guess it makes sense why literally every company
Speaker 1: in this space is saying it's not chips, it's not
Speaker 1: it's the energy. On the other hand, maybe we have
Speaker 1: some incredible technological breakthrough, a deep seek moment for chips,
Speaker 1: and these chips use you know, one hundredth of the electricity.
Speaker 2: That could have well, I mean again, going back to
Speaker 2: how we started the episode, you kind of saw a
Speaker 2: hint of that potential today.
Speaker 1: So such a fascinating space.
Speaker 2: Absolutely, shall we leave it there?
Speaker 1: Let's leave it there.
Speaker 2: This has been another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy All
Speaker 2: the Way.
Speaker 1: And I'm Joe wisanth Thought. You can follow me at
Speaker 1: The Stalwart. Follow our producers Carmen Rodriguez at Carmen Arman,
Speaker 1: dash Ol Bennett at Dashbott and Kelbrooks at Kelbrooks and
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