Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast bat We have a
Speaker 1: really cool guest with us now. Back in and the
Speaker 1: heat of the pandemic, we had KKR investing billions of
Speaker 1: dollars and credit strategies as most investors had dipped out.
Speaker 1: Now a person familiar tells me KKR invested more than
Speaker 1: five billion dollars in the last couple of months. Joining
Speaker 1: us now to talk about what KKR is doing is
Speaker 1: a director at the company tall reback. Thank you so
Speaker 1: much for joining us. Tell what are you buying right now?
Speaker 1: And why are you able to step in when others
Speaker 1: are stepping out? He needs a lot of great opportunities
Speaker 1: being created, you know, albeit on the Vaultwible backdrop, and
Speaker 1: you know, we're starting to think that Hi, You'll is
Speaker 1: getting more attractives are in high quality pockets. Senior secured
Speaker 1: loan paper, there's a lot of interesting dispersion also being created,
Speaker 1: I would say interest sector, and you know, from an
Speaker 1: inflationary perspective, we've already known about that for quite some time.
Speaker 1: So we've been really looking at durability of cash flows
Speaker 1: really using that as our true north and credit and
Speaker 1: downside protection as we look across the spectrum on what
Speaker 1: we want to lean into right now, what do you
Speaker 1: expect the FED to do? Um, And especially given your
Speaker 1: affiliation with the FED, I mean, you've you've got some
Speaker 1: really deep knowledge of how how they work. But they're
Speaker 1: in a difficult place right now because they're going to
Speaker 1: have to fight inflation and yet um, there are worries
Speaker 1: about slowing growth. Absolutely, you know, I think our base
Speaker 1: cases that the FED has to continue to tighten again.
Speaker 1: We think that's something that the market has priced in
Speaker 1: and it should have been on investors minds for some time,
Speaker 1: but that we don't see a way that they can
Speaker 1: pivot away from that, you know, given all of the
Speaker 1: moving parts in the market. So we do foresee the
Speaker 1: rate types taking place as that continues to unfold, making
Speaker 1: sure that we're as flexibly toggling between six and floating
Speaker 1: great assets really thinking about our portfolio construction and keeping
Speaker 1: in mind all of the geopolitical issues in the backdrop.
Speaker 1: When you look around you I know that you are
Speaker 1: finding opportunities, but where do you find big risks and
Speaker 1: the places that investors might lose a lot of money.
Speaker 1: Oh it's a great question. You know. One thing that
Speaker 1: we've talked about a lot at KKR. Sometimes the market
Speaker 1: grapples with a concept we like to call perception versus reality,
Speaker 1: And in this current chapter of the market, we think
Speaker 1: duration risk is one thing to really highlight. Given the
Speaker 1: FED stepping in in twenty you know, conducive monetary backsdrop
Speaker 1: or borrowers or extending their liabilities, the longer end of
Speaker 1: the curve could see a little bit more volatility, which
Speaker 1: we actually saw in January. So really mindful of that
Speaker 1: duration risk across our asset allocation. And you know, understanding
Speaker 1: that what was perceived once upon a time of safe
Speaker 1: for example, something like fixed income and I G that
Speaker 1: that may not be the best risk adjusted return right now.
Speaker 1: So going a little bit sub i G is where
Speaker 1: we would play what are the effects of the war
Speaker 1: tal I mean, I know geopolitical uncertainty is hard to
Speaker 1: price in but now we know what Russia is going
Speaker 1: to do, has done, is doing um and you can
Speaker 1: see the effects of businesses around the world. Yeah, absolutely,
Speaker 1: you know, first and foremost our thoughts are with people
Speaker 1: of Ukraine's during this tragic and terrible time. And you know,
Speaker 1: KKR is fortunate enough to have established the Kkeyre Global
Speaker 1: Institute over a decade ago, led by General Petraus, and
Speaker 1: we're staying very close to this and over communicating with
Speaker 1: our clients and portfolio companies. But we've we've incorporated into
Speaker 1: our investment process geopolitical risk. So we're being extremely thoughtful,
Speaker 1: you know, intra day as the situations of our looks,
Speaker 1: and quite honestly, in Europe that's closer to the unfortunate
Speaker 1: conflict we could were being collective. You know, there could
Speaker 1: be growth slowing there, you know, the net effects and
Speaker 1: second and third derivatives of supply chain issues and commodities.
Speaker 1: So we're being extremely thoughtful. UM and we'll see, but
Speaker 1: we're you know, we're just staying on our toes like
Speaker 1: everyone else. Yeah. Interesting, that's kind of like what me
Speaker 1: and met we're talking about earlier. Even though the stock
Speaker 1: market is up, that people are worried about those growth concerns.
Speaker 1: I'm wondering. You know, you mentioned General for Trayas and
Speaker 1: his work with KKR. How are you answering questions from clients?
Speaker 1: What are the biggest things on their mind as they
Speaker 1: navigate this market here and broad? Yeah? Absolutely, you know, firstly,
Speaker 1: we're we're over communicating, and you know, from a business perspective,
Speaker 1: we have very limited indirect exposure to begin with, really
Speaker 1: in large part to our investment process, and our platform
Speaker 1: is so connected and global that we're constantly cross pollinating
Speaker 1: across our different disciplines. So we're just making sure we're
Speaker 1: ready in the veil doable. We're taking note of every
Speaker 1: angle of the market. And one thing to say is,
Speaker 1: you know, we're in the market day and day out
Speaker 1: at very different verticals, so we're one team is seeing
Speaker 1: something where another is not. We're exchanging that information and
Speaker 1: making sure everyone is consistent on the same page. By
Speaker 1: the way, Nale was and I've been talking about the
Speaker 1: library OI spread for the past a few days and
Speaker 1: I see that you are responsible for um the firm's
Speaker 1: lie or transition effort. How how is that going to go?
Speaker 1: You know, what what are we going to really see
Speaker 1: in a world without libor Yeah, no, you came to
Speaker 1: the right person on that. So I think it's it's
Speaker 1: really interesting to see the widening and o I s
Speaker 1: right now, particularly because most of those quotes are really
Speaker 1: coming from the panel bank, something that we call expert judgment.
Speaker 1: You're not seeing a whole lot of wholesale transactions, so
Speaker 1: there's a gauge on what that bank and credit risk
Speaker 1: looks like. But if you look at the spots bread
Speaker 1: and you look how so for has the liquid and
Speaker 1: SOFA is really deep in. What we're seeing is, you know,
Speaker 1: a true adoption of the life after live boar, which
Speaker 1: I think is a net positive and as testament to
Speaker 1: all the work being done. But it is not, you know,
Speaker 1: notwithstanding something that highlights a few of the challenges we've
Speaker 1: seen with live brar historically, that it can start to
Speaker 1: get a bit wonky, especially in market environments like these
Speaker 1: where there's lacking liquidity. Teal great having you on. Thank
Speaker 1: you so much for joining us, and thanks to Chinali
Speaker 1: um for for booking or tal reback their director at KKR.
Speaker 1: Now I told you we're gonna talk to Will Naskovitz.
Speaker 1: He's the chairman and CEO of Heartland Advisors, and UM,
Speaker 1: great day to have you on, Will, thanks so much
Speaker 1: for joining us. What do you think about this bounce
Speaker 1: back we're seeing? Um, even after we heard UM, you know,
Speaker 1: the US is going to embargo Russian oil. That's gonna
Speaker 1: put some real um put put some Americans in real
Speaker 1: difficulty as prices are rising. In fact, Jeff Gunlock said,
Speaker 1: maybe even ten inflation. Why are we up today? Well,
Speaker 1: thanks for having me. I think it's this volatility is
Speaker 1: going to be with us for some time. And I'm
Speaker 1: certainly not trying to diminish the significance or the gravity
Speaker 1: of the situation in Ukraine, but for some perspective, I
Speaker 1: think is worthwhile. And we've had hundreds of crises, you know,
Speaker 1: going in, dozens of prices going back the hundred years
Speaker 1: or so, and you know, typically your post the event,
Speaker 1: whether it's at a war or terrorist attack or some
Speaker 1: type of financial panic, the market is up. So I
Speaker 1: don't know that this circumstance is going to play out
Speaker 1: like that, but I do. I think it feeds the
Speaker 1: should of trying to capitalize on some of the opportunities
Speaker 1: that are presenting. Two investors and that's what you know,
Speaker 1: we're going to continue to do at here at Hartman.
Speaker 1: We're gonna continue to apply our our ten principles of
Speaker 1: value investing and look at this specific risks and outlooks
Speaker 1: in any particular company. I mean, what we're finding here
Speaker 1: in this sell off, and this is perhaps why we're
Speaker 1: seeing buying day, is that in many cases, the valuations
Speaker 1: of companies have really disconnected from you know, their fundamentals
Speaker 1: that they're going to be seen over over the longer term,
Speaker 1: notwithstanding all the uncertainties that are out there. So what
Speaker 1: are you recommending to clients? What do you do? Do
Speaker 1: you buy amid the volatility or do you sit on
Speaker 1: the sidelines? Well, I think you just have to be
Speaker 1: aware of it, all right. You can't just be laser
Speaker 1: focused on the macro and all the geopolitical. You have
Speaker 1: to do that in conjunction with adhering to your process
Speaker 1: and I referenced earlier us remaining focused on the specific
Speaker 1: company risks and opportunities out there and looking at it
Speaker 1: a case by case basis, where perhaps the valuations look
Speaker 1: really compelling because the market overestimated some of these risks,
Speaker 1: risks or at the very least taking a very short
Speaker 1: term view. I mean, I think a good example, maybe
Speaker 1: get a little more specifics on this. The health care
Speaker 1: sector was not a great place to be last year.
Speaker 1: We're all familiar with with COVID and all the protocols
Speaker 1: and the labor challenges that really damp in the sidures
Speaker 1: that companies and hospitals experience. You know, that's presenting opportunities
Speaker 1: in that space here today because we think those procedures
Speaker 1: come back in the evaluations aren't reflecting it. So I
Speaker 1: think you just have to be very choosy, very specific
Speaker 1: in your work and be you know, entrepreneurial and an
Speaker 1: active investor. Here, let's get over Tom Stringfellow and ask
Speaker 1: him those questions. He's the chief investment Strategies at Argent
Speaker 1: Financial Group. Tom Um, thanks for joining us. We've been
Speaker 1: talking about these big inflation predictions and warnings from good
Speaker 1: luck and think what do you think? Well, I appreciate
Speaker 1: the opportunity, and you have the ten percent number. Yeah,
Speaker 1: that's kind of a scary number and it's certainly not
Speaker 1: one that I'm looking at at this point in time,
Speaker 1: you know, and you know, just thinking back to the
Speaker 1: charts that were just mentioned, absolutely correct. Everything is is,
Speaker 1: you know, it's just escalated and elevating. And I put that,
Speaker 1: you know, kind of a momentum rush right now that
Speaker 1: I don't think it's sustainable in inflation if you start
Speaker 1: talking about ten. But I wouldn't be surprised if we
Speaker 1: don't get hit with something just shy of north of
Speaker 1: eight percent, you know, with this coming month. Uh, you know,
Speaker 1: in terms of CPI and maybe core somewhere around six
Speaker 1: and a half percent. Either way, those are still well
Speaker 1: here high. With Texas Intermedia trading at a hundred and
Speaker 1: seventeen dollars a barrel um. You know, yesterday it looked
Speaker 1: like we were gonna get closer to one thirty. That's
Speaker 1: gotta that's got either brought under control or I mean,
Speaker 1: how do you see that from Texas? Well, you know,
Speaker 1: good point from Texas. You know, we kind of look
Speaker 1: at it, and you know, if you're a mental owner,
Speaker 1: you gotta love oil. Uh, if you're driving back and forth,
Speaker 1: you know, that changes the perspective. And and you know
Speaker 1: there is some thought that maybe you know, these higher
Speaker 1: wall prices at the pump or somewhat deflationary because it's
Speaker 1: taken money away from you know, what might be spent
Speaker 1: on endurables, you know, by consumers over the next several months.
Speaker 1: But you know, if you believe prices are going to
Speaker 1: higher in the oil business, you've got to also believe
Speaker 1: that the Ukraine situation gets much much worse and continues
Speaker 1: to be an absolute uh channel blocker on the oil industry.
Speaker 1: And and you know that's the question. What happens over
Speaker 1: there certainly has a lot of impact on how inflationary
Speaker 1: we're going to be, you know, not only at the
Speaker 1: at the fuel pump, but also at the grocery store.
Speaker 1: You know, it's not it's really not just oil though,
Speaker 1: right real quick here, I mean, how much are these
Speaker 1: price increases going to float through the economy? Well, and yeah,
Speaker 1: that's that's a great point. And you know, right now
Speaker 1: we started to see companies uh starting to raise prices,
Speaker 1: and you know, I think that's inevitable. You know, they're
Speaker 1: going to have to continue trying to keep you know,
Speaker 1: reasonable target margin for you know, their operations. So it
Speaker 1: is definitely going to bleed through, especially you know, anything
Speaker 1: that's resource based. You know, these prices are going to
Speaker 1: have to flow through to the market. And you know,
Speaker 1: I don't know that we have seen that kind of
Speaker 1: pricing yet into the underlying financials and the into the
Speaker 1: market itself. Investors I think are focusing on you know,
Speaker 1: the impact on interest rates and inflation and you know,
Speaker 1: what's that going to do based on prior history, But
Speaker 1: I don't see that having been priced into the market. Yeah,
Speaker 1: what we're seeing today I think is just natural for
Speaker 1: a volatile, uncertain market. You know, we're in a pendulum
Speaker 1: swing right now that just keeps to it seems to
Speaker 1: you know, go from one extream to another. That's that's
Speaker 1: how I view this. But this volatility has also given
Speaker 1: us some great buys. Yeah, Tom, we're gonna have to
Speaker 1: get the check back in with you later on those
Speaker 1: buying opportunities, But appreciate your time today, Tom string Fellow,
Speaker 1: Chief Investment Strategy, Argent Financially. Just get over to Caroline
Speaker 1: Bresson right now, Managing director of the Open Road Alliance
Speaker 1: and the Open Road Impact Fund. UM. Caroline, Caroline talked
Speaker 1: to us about what exactly you do with the Open
Speaker 1: Road Alliance. Sure, and thanks mat intionally for for having
Speaker 1: me today. So open Road steps up at critical moments
Speaker 1: and UM, there's some sort of delay or or there's
Speaker 1: kind of an acceleration for an impact first company that
Speaker 1: addressing climate change or inequality. Uh So, for example, we
Speaker 1: actually just funded a company that provides a warning system
Speaker 1: for air strikes against civilians. They give seven to ten
Speaker 1: minutes warning um and and serve over two million people
Speaker 1: across Syria and Yemen. So we're hoping Hollow Systems can
Speaker 1: provide their services soon in Ukraine. Um. But our investment
Speaker 1: helps them, uh, you know, accelerate their growth and continue
Speaker 1: to keep their their impact on track when they had
Speaker 1: some snags in their fundraising. Well that's just the thing
Speaker 1: about impact investing. If you're if your impact invest so
Speaker 1: you need to kind of stick in it for the
Speaker 1: long road. What are some of the challenges along the way. Yeah, so, um,
Speaker 1: you know, open road plays a very specific role. We
Speaker 1: we do bridge financing. So unfortunately, UM, my dad's an economist.
Speaker 1: So if you say, we have a very inefficient impact
Speaker 1: investing sector where funds are committed, but they're often not
Speaker 1: dispersed into the hands of entrepreneurs for you know, sometimes
Speaker 1: twelve months um and so when you think about all
Speaker 1: that red tape in particular, if you're getting an investment
Speaker 1: from a government or something like that. Um, people, entrepreneurs
Speaker 1: are just sitting on their hands waiting for for cash
Speaker 1: to come in the door. So Open Road provides these
Speaker 1: bridge loans that solve for those one time, discrete moments
Speaker 1: of cash crunch. What does a raising rate environment mean
Speaker 1: to you? Yeah, good question. So it's interesting. The impact
Speaker 1: sector is a bit you know, government funds and so
Speaker 1: I believe that rates will go up um on on
Speaker 1: the debt side, just as as you would see in
Speaker 1: in any financial market. However, there is a lot of
Speaker 1: downward pressure from you know, philanthropic funds and and government
Speaker 1: funds that might keep the cost of capital lower for
Speaker 1: these impacts focused on entrepreneurs. Now, when you think about
Speaker 1: kind of what's happening in the world and and the
Speaker 1: fight over oil and the investment that might go into
Speaker 1: energy into the United States, I mean, how does that
Speaker 1: start to complicate a lot of the big E s
Speaker 1: G investments that have been brewing for so long. Yeah, well,
Speaker 1: you know, E s G is really just a framework,
Speaker 1: and so what it does is it identifies risks up front.
Speaker 1: It doesn't say that, you know, you should avoid it.
Speaker 1: It means that the price should reflect the risk. Um.
Speaker 1: But but I think you know, what's going on with
Speaker 1: Russian oil right now really is a great moment for
Speaker 1: green energy. And we've seen that Germany already has, you know,
Speaker 1: UH moved up their target to five to get into
Speaker 1: full green energy. So I'm hopeful that it'll just mean
Speaker 1: a recommitment to getting towards those climate goals sooner. Difficult
Speaker 1: though for the American consumer, for the everyday person here
Speaker 1: right when you see gas prices at six seven dollars
Speaker 1: of barrel, I have noticed that even I, UH as
Speaker 1: as an incredible car lover, have thought, you know what,
Speaker 1: maybe I should take the train. Um. That kind of
Speaker 1: demand instruction is probably good for the transition, right. Yeah. Absolutely.
Speaker 1: You know, I'm jealous of my neighbor down the streets
Speaker 1: that bought a Tesla UM, and I think it will
Speaker 1: just accelerate. Um. You know, the investment into UH into
Speaker 1: electric cars, UM, the companies out there uponnding the pavement
Speaker 1: to to raise new funds hopefully. UM. You know, the
Speaker 1: more money they get, the quicker they can invest, the
Speaker 1: more they can bring down costs on electric cars and
Speaker 1: similar technologies that will hopefully show up in the hands
Speaker 1: of consumers and into solar. Um. You know, because when
Speaker 1: you have your neighbor probably doesn't want to be powering
Speaker 1: his or her tesla with dirty coal electricity. Would be
Speaker 1: much better to put solar panels on the roof and
Speaker 1: charge it up that way. Is that something that you
Speaker 1: think is going to pick up? Because it wasn't the
Speaker 1: Open Road Alliance. Um, it wasn't that a big part
Speaker 1: of the of the start of Open Road. Yeah. So
Speaker 1: about half of our portfolio is in in renewable energy,
Speaker 1: and UM, we just see more and more, you know,
Speaker 1: funds being started to help accelerate that. Um. But when
Speaker 1: you look at some states are kind of already ahead
Speaker 1: of the curve. I think Washington State, Um, over the
Speaker 1: energy produced is is via hyperpower. California, well over half
Speaker 1: of the energy is solar. And so we should see that,
Speaker 1: you know, reliance on oil coming down. Um. It just
Speaker 1: depends on how much your state's invested in that technology
Speaker 1: to date. On one hand, and we just have about
Speaker 1: a minute left here. You say that it's inefficient sometimes
Speaker 1: to invest this way, but I can really show up
Speaker 1: in times of an emergency. How's that working now? Yeah?
Speaker 1: You know, when we think about how these large climate
Speaker 1: commitments are translated into impact. It's it's obvious that individual
Speaker 1: companies must receive capital from those large commitments to get
Speaker 1: their climate mitigating work started. You know, salaries must be paid,
Speaker 1: inventory ordered, et cetera. And so the demand is higher
Speaker 1: than ever for Open Road UM. You know, we are
Speaker 1: providing our bridge loans at a at a breakneck pace,
Speaker 1: trying to meet the demands of companies that are working
Speaker 1: towards this climate transition. All right, really interesting stuff, Caroline,
Speaker 1: Thanks so much for joining us, Caroline Brassan. They're managing
Speaker 1: director of Open Road Alliance and Open Road Impact. Fun
Speaker 1: talking to us about UM their business. Thanks for listening
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer.
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three
Speaker 1: on false Sweeney I'm on Twitter at pt Sweeney. Before
Speaker 1: the podcast, you can always catch us worldwide at Bloomberg Radio.